Location choice under trade and environmental policies

In this paper, we use a game theoretic model to analyze the trade-off between the attractiveness of FDI and the environmental damage caused by production under asymmetric information. In the first stage, the domestic developing country reveals the level of import tariff and pollution tax under information uncertainty about the environmental damage that the foreign firm can cause. The foreign firm from a developed country decides where to locate afterwards with complete information about its own damage. Results show that the developing country can be better off encouraging FDI if and only if the marginal damage of pollution is sufficiently low. The optimal level of pollution taxes attracting FDI is higher than the marginal damage of pollution. However, the optimal pollution tax without FDI can be lower than the marginal damage of pollution with sufficiently high demand in the developing country.     

International trade agreements, environmental policy, and relocation of production

This paper studies the influence of free trade agreements on national environmental policies and location strategies of polluting firms. It is shown that banning export subsidies makes relocation of production more attractive for firms. When export subsidies are banned relocation is profitable because: (1) the rival firm reduces output due to more stringent emission regulation in the host country of the investment and (2) relocation leads to lower emission tax rate in the original home country of the investing firm. When export subsidies are used, the first effect is absent because the host government is able to use the export subsidy to compensate the negative effect of more stringent emission taxation on domestic shareholders.     

Environmental Policy with Endogenous Plant Locations

In a game between the governments of two countries, each chooses its own environmental policy. The Nash equilibria of the game are generally not Pareto optimal. On the one hand, each country may want to attract industry, giving it an incentive to choose low environmental taxes or standards. On the other hand, if disutility from pollution is sufficiently high, each country might prefer that a firm locates only in other countries. This effect tends to make the environmental policy under non-cooperation stricter than it would be with cooperation.     

Technology Gap Matters on Spillover

This paper develops an oligopoly model with endogenous technology spillovers through foreign direct investment (FDI). The foreign entrant brings a superior technology and therefore may spend resources to prevent spillovers of its technology to the home firm. The home firm has an incentive to spend resources to gain these spillovers. After firms strategically choose their expenditures to influence technology spillovers, they compete in a Cournot–Nash quantity game. This study provides theoretical insight on the positive and negative empirical spillover results of FDI on productivity of local firms. Up to a critical bound, the larger the initial technology gap between the foreign and home firms, the more the home firm spends to gain spillovers. Past that boundary, the home firm decreases spending. As a result, the home firm's profits from spillovers vary, but larger technology gaps engender greater net profit losses from FDI.     

Multinational Firms and Strategic FDI Subsidies

A simple three‐stage game model of an international Cournot duopoly, consisting of domestic and foreign multinational firms, is exploited to examine strategic FDI subsidies. While in the first stage the governments decide the optimal FDI subsidies, the firms endogenously choose their FDI levels (or subsidiary plant sizes) in the second stage and their output–export levels in the third stage. Thus, this paper finds that while the outflow and inflow FDI subsidies have different effects on firms’ FDI choices, the FDI subsidies are used as tools for the implementation of strategic policies and that the optimal FDI subsidies vary, depending on whether the governments assess labor employment.     

外商直接投资与管理知识溢出效应:来自中国民营企业家的证据

本文从民营企业家的角度对FDI管理知识溢出效应的存在性进行了实证研究。我们运用中国 1 997、2 0 0 0、2 0 0 2年三次全国民营企业抽样调查数据 ,通过回归分析、TreatmentEffect方法和有限因变量模型 ,研究了中国民营企业家在“三资”企业工作的经历对其企业的经营业绩和管理方法的影响。本文所得到的经验结果显示 ,在企业业绩的最终表现上 ,FDI对中国企业家有一定的培训效果 ,但效果不十分显著 ;同时在“三资”企业的工作经历会带给民营企业家某些、而不是全面的先进管理理念。我们认为要获得更加显著的FDI溢出效应 ,政府应当着眼于制定政策来扶持本地企业 ,通过公平竞争缩小他们与先进企业的距离 ,促使FDI在激烈的市场竞争中带来真正先进的管理经验和知识 ;并通过教育培训投入 ,提高本地管理者对外来的先进管理方法的学习能力。     

FDI and environmental regulation: pollution haven or a race to the top?

Increasing foreign direct investment (FDI) flows accompanied with globalization have raised the concern of a “race to the bottom” phenomenon in environmental protection. This is because footloose investors of “dirty” industries tend to relocate to “pollution havens” of the developing world. However when pollutant is transboundary (as in the case of greenhouse gases), the source country’s incentive to relocate and the recipient country’s willingness to host such industries are not straightforward. This article studies the relationship between FDI and environmental regulation using a North–South market share game model in a two-country setting, when pollution is transboundary. Contrary to the pollution haven hypothesis, our model shows that if market sizes of the two countries are small, FDI will raise the emission standard of the host country, resulting in a “race-to-the-top” phenomenon; but if market sizes are large enough, FDI will not change the emission standard of the South (from its laxest form), a finding that is consistent with the “regulatory chill” argument. Equilibrium FDI is contingent on the fixed cost of FDI, as the traditional proximity–concentration tradeoff theory predicts.     

Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China

At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate.     

Location choice,competition, and welfare in non-tradable service FDI

We investigate whether non-tradable service FDI is efficient from a welfare point of view. A fixed number of firms strategically decide which markets to locate in and then compete in quasi-Cournot fashion. Considering firm location in two symmetric markets, non-tradable service FDI may or may not be efficient for the source country, depending on the total number of firms, competition in markets and the curvature of the demand function. In contrast, non-tradable service FDI is always efficient for the host country and the overall economy. This implies that any policy that affects firm location between two symmetric markets will not be beneficial from a welfare viewpoint.     

中美贸易中隐含的碳排放以及贸易环境效应——基于环境投入产出法的实证分析

中美贸易的巨额逆差带来的不仅仅是贸易问题,还包括一系列的环境问题。利用环境投入产出模型测算1997年-2009年中美贸易中所隐含的CO2排放量,得出如下结论:中美贸易中中国大部分行业污染贸易条件均大于1,且呈不断恶化趋势;出口规模越大、贸易竞争力越强的产业单位出口的CO2排放强度越小,中国出口美国的产品与污染品并无必然联系;美国对华FDI转移并未引起美国污染产业向中国转移,而全球FDI向华转移使得"污染天堂"理论在华成立;中国出口CO2排放速度低于其出口速度,单位出口的CO2排放强度呈下降趋势;改变中国污染顺差国的地位,中国需加强对美国污染品的进口,积极改变粗放型的生产方式,加快对价值链高端清洁产品的生产。     

Strategic Environmental Policies in the Presence of Foreign Direct Investment

We analyze strategic environmental standards in the presence of foreign direct investment. A number of foreign firms located in a host country compete with a domestic firm in another country to export a homogeneous good to a third country. When the number of foreign firms is exogenous, the host country applies a stricter environmental regulation than the other producing country. However, under free entry and exit of foreign firms, the host country may apply a less severe standard under both non-cooperative and cooperative equilibrium. We also find that the nature market structure does not affect the equilibrium values of total pollution if export subsidies are also used.JEL Classification: F2, H2     

The spatial correlation and interaction between environmental regulation and foreign direct investment

This paper uses spatial simultaneous equation models to analyze the two-way mechanism between environmental regulation and foreign direct investment (FDI). The results, based on data from 285 cities in China from 2003 to 2014, show the following. (1) Not only does environmental regulation have a significant impact on the location choice of FDI, but FDI tends to flow to a city with more relaxed environmental regulation. Environmental regulation can also trigger the near transfer effect of FDI. (2) FDI has a significant spatial spillover effect and this spatial spillover effect has an important impact on FDI and environmental regulation in a particular city. (3) Although multinationals choose a city with more relaxed environmental regulations when they invest in China, FDI inflows have increased both the number and severity of local environmental regulations, indicating that the “pollution haven” hypothesis does not hold in China. (4) Environmental regulation has a significant spatial spillover effect, and this spatial spillover effect has an important impact on both environmental regulation and FDI in cities. In China, there is also a local competitive effect of environmental regulation, albeit with significant regional differences.     

Technological Constraints,Firm Heterogeneity,and Location Choice of Multinational Enterprises

This paper aims to examine the relationship between the location choices of multinational enterprises and their productivity considering the North–South differences in regard to technological constraints. We find that home firms with the highest level of productivity choose to undertake foreign direct investment (FDI) in the developed countries and they choose to export to, rather than do FDI in, developing countries. This result explains why not many high tech industries exist in developing countries. Using Japanese firm level data, we also confirm that Japanese high tech firms tend to undertake FDI in developed countries, but hesitate to invest in developing countries empirically.     

Multinationals and Exports in a Large and Protected Developing Country

This paper examines an industry‐level model developed to analyze the impact of affiliates of multinational firms (MNFs) on the host country's revealed comparative advantages (RCAs), which predicts that the referred impact is given by both technology service and industry orientation. Based on Brazilian manufacturing industries during the import‐substitution industrialization, panel data estimates show that MNFs negatively affected RCA, which is explained by location advantages in industries presenting comparative disadvantages, as reinforced by a location model. Two other important results are: (i) import protection had a stronger anti‐export effect on multinationals than on national firms; (ii) MNFs were concentrated in industries with lower world‐export growth.     

知识产权保护与跨国公司对外直接投资策略

本文通过构建一个三方参与的两阶段动态博弈模型,来分析东道国的知识产权保护政策对于FDI的影响。分析结果表明,对于东道国政府而言,提供适度且有效率的知识产权保护政策,不仅可以增加FDI的流入量,而且可以引进较为先进的技术,从而通过降低成本和提高产量,实现东道国社会福利最大化。同时,东道国政府在提供有效率的知识产权保护条件下,允许跨国公司按利润最大化原则选择其股权份额,是符合东道国自身利益的。而仅当东道国政府无法提供有效率的知识产权保护时,限制外商投资比例才不失为一种次佳的政策选择。     

Firm heterogeneity in modelling foreign direct investment location decisions

This article investigates the probability of the FDI location decisions of multinational enterprises using a mixed logit panel data model, which is the most flexible discrete choice model. We employ a three-level data set, which includes over 1100 FDI location decisions into 13 alternative Central and Eastern European Countries (CEECs) over an 11-year period. Our empirical results on the effect of host country, industry and firm characteristics on the probability of undertaking FDI in a particular location are significant and consistent with the predictions of our theoretical model.     

Foreign direct investment and host country policies: A rationale for using ownership restrictions

This paper examines host governments' motivation for restricting ownership shares of multinational firms (MNFs) in foreign direct investment (FDI) projects. An MNF with a productivity advantage is willing to invest in a host country. The host government wants to capture the MNF's surplus yet cannot observe it due to the MNF's private information about its firm-specific advantage. In contrast, a joint venture (JV) partner might observe this surplus depending on its ownership share. The host government can alleviate its informational constraints by using ownership restrictions to force a JV. This calls into question the wisdom of calls for ‘liberalizing’ FDI flows by the wholesale elimination of domestic JV requirements. We show that the optimal mechanism involves ownership restrictions that decrease as the size of the MNF's firm-specific advantage increases.     

Foreign direct investment in Turkey: regional determinants

The uneven regional distribution of foreign direct investment (FDI) in Turkey poses an interesting question from the perspective of multinational firms (MNFs) and policy-makers alike. This paper focuses on the factors governing the location decisions of MNFs within Turkey with specific reference to policy implications. Using a conditional logit model, it is found that agglomeration, depth of local financial markets, human capital, and coastal access dominate location decisions for the aggregate sample of foreign investors in Turkey. This study reveals no evidence that public investment is successful in attracting MNFs to particular regions. Also importantly, the location determinants vary dramatically by broad industrial category, investment composition, and origin-country characteristics, including income category and region.     

Competing to Outsource in the South

This paper analyzes foreign direct investment (FDI) competition in a three‐country framework: two Northern countries and one Southern country. We have in mind the competition of Airbus and Boeing in a developing country. The host‐country government endogenizes tariffs, while Airbus and Boeing choose domestic output and FDI. Wages and employment in the home countries are negotiated. We find that in the unique equilibrium, both Airbus and Boeing compete to undertake FDI in the developing country. This arises because the host country can play off the multinationals, which in turn stems from three factors: (a) oligopolistic rivalry; (b) quid pro quo FDI; (c) strategic outsourcing—FDI drives down the union wages at home if the host‐country wage is sufficiently low. However, if the host‐country wage is sufficiently high, the union wage increases under FDI. In such cases, FDI competition benefits the multinationals, the labor unions, as well as the host country.     

Tax Competition in Vertically Differentiated Markets with Environmentally Conscious Consumers

This paper analyses the effects of tax competition on environmental product quality, pollution and welfare in a two-country, vertically differentiated, international duopoly, in which consumers are environmentally conscious. The firm in each country chooses first the environmental quality of its product (which reflects the emissions generated in the production process) and then the price. In equilibrium one country will be more polluted than the other because firms choose different levels of environmental quality of their products. We find that a country’s optimal commodity tax is higher if the domestic firm is the more polluting supplier. Furthermore, non-cooperative commodity tax rates are inefficiently high in equilibrium. This is because, in this framework with environmentally aware consumers, commodity taxes affect the choice of firms regarding their emissions. Therefore, a domestic tax reduction not only raises the profits of the foreign firm but also lowers its emission levels, resulting in higher welfare for the other country. We also analyse the optimal cooperative and non-cooperative commodity and emission taxes with border tax adjustments. With these two policy instruments available, commodity taxes are higher.