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Strategic Environmental Policies in the Presence of Foreign Direct Investment

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Abstract

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.

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Authors and Affiliations

  1. Department of Management Engineering, Istanbul Technical University, Istanbul, Turkey

    M. Ögür Kayalica

  2. Department of Economics, Southern Illinois University Carbondale, Carbondale, IL, 62901, USA

    Sajal Lahiri

Authors
  1. M. Ögür Kayalica
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  2. Sajal Lahiri
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Correspondence to M. Ögür Kayalica.

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JEL Classification: F2, H2

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Kayalica, M.Ö., Lahiri, S. Strategic Environmental Policies in the Presence of Foreign Direct Investment. Environ Resource Econ 30, 1–21 (2005). https://doi.org/10.1007/s10640-004-0757-3

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  • DOI: https://doi.org/10.1007/s10640-004-0757-3

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