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The Effect of Environmental Regulation on the Locational Choice of Japanese Foreign Direct Investment

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  • Kirkpatrick, Colin
  • Shimamoto, Kenichi
Abstract
This paper assesses the impact of environmental regulation in host countries on Japanese foreign direct investment (FDI) decision-making. It tests the pollution haven hypothesis using data on national environmental regulation standards and Japanese inward FDI in five dirty industries (iron and steel industry, non-ferrous metals industry, chemicals industry, paper and pulp industry, non-metallic products industry). The results do not support the pollution hypothesis. On the contrary, inward Japanese FDI appears to be attracted to countries which have committed themselves to a transparent and stable environment regulatory environment, suggesting that the quality of the regulatory framework in terms of its certainty and transparency has a greater influence on foreign investors' choice of location than the level of the environmental regulatory measures.

Suggested Citation

  • Kirkpatrick, Colin & Shimamoto, Kenichi, 2005. "The Effect of Environmental Regulation on the Locational Choice of Japanese Foreign Direct Investment," Impact Assessment Research Centre (IARC) Working Papers 30584, University of Manchester, Institute for Development Policy and Management (IDPM).
    • Handle: RePEc:ags:idpmia:30584
    DOI: 10.22004/ag.econ.30584
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    Cited by:

    1. Rezza, Alief A., 2013. "FDI and pollution havens: Evidence from the Norwegian manufacturing sector," Ecological Economics, Elsevier, vol. 90(C), pages 140-149.
    2. Thierry Madiès & Ornella Tarola & Emmanuelle Taugourdeau, 2022. "Tax haven, pollution haven or both?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1527-1560, December.
    3. José-Antonio Monteiro & Madina Kukenova, 2008. "Does Lax Environmental Regulation Attract FDI When Accounting For "Third-Country" Effects?," IRENE Working Papers 08-01, IRENE Institute of Economic Research.
    4. Ramstetter, Eric D., 2013. "Resource and Labor Cost Differentials between Japan and Asian Host Economies and Location Decisions of Japan's Manufacturing Multinationals," AGI Working Paper Series 2013-04, Asian Growth Research Institute.
    5. Julia Bahlmann & Paul J.J. Welfens, 2021. "Environmental Policy Stringency and Foreign Direct Investment: New Insights from a Gravity Model Approach," EIIW Discussion paper disbei294, Universitätsbibliothek Wuppertal, University Library.
    6. Kenichi SHIMAMOTO, 2016. "Effects Of Environmental Regulations On Pollution Reduction And Firm Location," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 65-76, December.
    7. Yinhao Wu & Changhong Miao & Jianming Miao & Yan Zhang, 2020. "How Does Environmental Regulation Affect the Location of New Polluting Firms? Exploring the Agglomeration Threshold of Effective Environmental Regulation," IJERPH, MDPI, vol. 17(4), pages 1-16, February.
    8. Yinhao Wu & Shumin Yu & Xiangdong Duan, 2021. "The Impact of Environmental Regulation on the Location of Pollution-Intensive Industries in China under Agglomeration Effect," IJERPH, MDPI, vol. 18(8), pages 1-14, April.
    9. Maoliang Bu & Marcus Wagner, 2016. "Racing to the bottom and racing to the top: The crucial role of firm characteristics in foreign direct investment choices," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(9), pages 1032-1057, December.
    10. Neves, Sónia Almeida & Marques, António Cardoso & Patrício, Margarida, 2020. "Determinants of CO2 emissions in European Union countries: Does environmental regulation reduce environmental pollution?," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 114-125.
    11. Kenichi SHIMAMOTO, 2016. "Effects Of Environmental Regulations On Pollution Reduction And Firm Location," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 65-76, December.
    12. Grégoire Garsous & Tomasz Kozluk, 2017. "Foreign Direct Investment and The Pollution Haven Hypothesis: Evidence from Listed Firms," OECD Economics Department Working Papers 1379, OECD Publishing.
    13. Yanchao Feng & Xiaohong Wang & Wenchao Du & Jun Liu, 2018. "Effects of Air Pollution Control on Urban Development Quality in Chinese Cities Based on Spatial Durbin Model," IJERPH, MDPI, vol. 15(12), pages 1-21, December.
    14. Zhonghua Cheng & Lianshui Li & Jun Liu, 2018. "The spatial correlation and interaction between environmental regulation and foreign direct investment," Journal of Regulatory Economics, Springer, vol. 54(2), pages 124-146, October.
    15. Mei Ren & Caihong Huang & Xiaomin Wang & Wei Hu & Wenxin Zhang, 2019. "Research on the Distribution of Pollution-Intensive Industries and Their Spatial Effects in China," Sustainability, MDPI, vol. 11(19), pages 1-20, September.
    16. Yunyi Hu & Haitao Yin & Jon J. Moon, 2022. "Environmental regulation and foreign investment: Evidence from China," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 862-883, November.
    17. Xu (Susan) Tang, 2017. "Competition or Coordination: Strategic Environmental Policymaking Across OECD Countries," 2017 Papers pta721, Job Market Papers.
    18. Dan Huang & Shihu Zhong & Juan Tang & Jingjing Zhao, 2021. "Impact of foreign direct investment on the haze pollution in various cities: Evidence from China," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2016-2039, December.
    19. Assad Ullah & Xinshun Zhao & Muhammad Abdul Kamal & Jiajia Zheng, 2022. "Environmental regulations and inward FDI in China: Fresh evidence from the asymmetric autoregressive distributed lag approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1340-1356, January.

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    More about this item

    Keywords

    Environmental Economics and Policy; International Relations/Trade;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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