Environmental Regulation: An Incentive for Foreign Direct Investment |
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Authors: | Bouwe R Dijkstra Anuj Joshua Mathew Arijit Mukherjee |
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Institution: | 1. School of Economics, University of Nottingham, UK;2. School of Economics and NCID, Universidad de Navarra, Spain |
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Abstract: | Empirical evidence has so far failed to confirm that lenient environmental regulation attracts investment from polluting firms. In a Cournot duopoly with a foreign firm and a domestic firm, we show that the foreign firm may want to relocate to the domestic country with stricter environmental regulation, when the move raises its rival domestic firm's cost by sufficiently more than its own. The domestic (foreign) country's welfare is (usually) lower with foreign direct investment. |
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