The Competition for FDI and Its Effect on Environmental Standards

Abstract

The competition for FDI and its effect on environmental standards represents the second vein of the discussion framework of the FDI-environment relationship and basically refers to the body of literature in which much of the debate on the FDI-environmental relationship has been developed so far. It considers the development of a reflection process, whose mainstreams could be seen as two sides of the same coin: the impact of environmental standards on the location of firms’ investment decisions and the environmental effects of international countries’ competition for FDI. The first basically tries to understand if the existence of countries with different environmental regulations and standards can be a reason for firms relocating their activity. The latter analyses the implication of the FDI-environment nexus which occurs, for example, when countries intentionally modify their environmental regulatory systems by lowering environmental standards to attract more FDI or—as a counter fact—by increasing them to gain a competitive advantage in the longer term. This body of literature deals with various phenomena associated with theories, whose existence is based on the existence of the following hypothesis: (1) “pollution havens”; (2) “race to the bottom”; (3) “regulatory chill”.