Multinationals and environmental regulation: are foreign firms harmful?

Dardati, Evangelina; Saygili, Meryem

The rise of globalization has directed the attention of economists to the effect of trade and multinational production on the environment. We explore whether multinational firms, frequently the target of environmentalists, are harmful for a host country's environment. We introduce environmental regulation in a two-country model of heterogeneous firms with monopolistic competition. Using plant-level data from Chile, we test the model implications. We find that foreign firms are cleaner than domestic plants even after controlling for productivity that is likely to be negatively correlated with emissions. We also show that increasing the stringency of environmental regulations in a previously unregulated market affects the domestic firms more than the multinationals.

CHILE; ENVIRONMENTAL regulations; BUSINESS enterprises; GLOBALIZATION; ECONOMISTS; ECONOMIC efficiency; ECONOMIC models

Environment & Development Economics, 2012, Vol 17, Issue 2, p163

1355-770X

Academic Journal

10.1017/S1355770X11000398