Multinationals and environmental regulation: are foreign firms harmful?

2012 ◽  
Vol 17 (2) ◽  
pp. 163-186 ◽  
Author(s):  
Evangelina Dardati ◽  
Meryem Saygili
Keyword(s):  
Environmental Regulation ◽  
Multinational Firms ◽  
Monopolistic Competition ◽  
Environmental Regulations ◽  
Heterogeneous Firms ◽  
Foreign Firms ◽  
Domestic Firms ◽  
Level Data ◽  
Multinational Production ◽  
Plant Level

AbstractThe 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.

scholarly journals Global Production with Export Platforms*

2016 ◽  
Vol 132 (1) ◽  
pp. 157-209 ◽  
Author(s):  
Felix Tintelnot
Keyword(s):  
General Equilibrium ◽  
Host Country ◽  
Foreign Investment ◽  
Multinational Firms ◽  
Multinational Enterprise ◽  
Fixed Costs ◽  
Firm Level ◽  
Level Data ◽  
Multinational Production ◽  
Foreign Affiliates

Abstract Most international commerce is carried out by multinational firms, which use their foreign affiliates both to serve the market of the host country and to export to other markets outside the host country. In this article, I examine the determinants of multinational firms’ location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms—that is, they do not allow foreign affiliates of multinationals to export—or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multicountry general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that the fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual analysis reveals that multinationals play an important role in transmitting technological improvements to foreign countries and that the pending Canada-EU trade and investment agreement could divert a sizable fraction of the production of EU multinationals from the U.S. to Canada.

scholarly journals Sales and Markup Dispersion: Theory and Empirics

Econometrica ◽  
2021 ◽  
Vol 89 (4) ◽  
pp. 1753-1788 ◽  
Author(s):  
Monika Mrázová ◽  
J. Peter Neary ◽  
Mathieu Parenti
Keyword(s):  
Demand Function ◽  
Structural Model ◽  
Monopolistic Competition ◽  
Heterogeneous Firms ◽  
Dispersion Theory ◽  
Firm Level ◽  
Level Data ◽  
Indian Firm ◽  
Necessary And Sufficient ◽  
The Relationship

We characterize the relationship between the distributions of two variables linked by a structural model. We then show that, in models of heterogeneous firms in monopolistic competition, this relationship implies a new demand function that we call “CREMR” (Constant Revenue Elasticity of Marginal Revenue). This demand function is the only one that is consistent with productivity and sales distributions having the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and it is necessary and sufficient for Gibrat's Law to hold over time. Among the applications we consider, we use our methodology to characterize misallocation across firms; we derive the distribution of markups implied by any assumptions on demand and productivity; and we show empirically that CREMR‐based markup distributions provide an excellent parsimonious fit to Indian firm‐level data, which in turn allows us to calculate the proportion of firms that are of suboptimal size in the market equilibrium.

Making the Invisible Visible: Investment Promotion and Multinational Production in Latin America and the Caribbean

2021 ◽  
Author(s):  
Christian Volpe Martincus ◽  
Ignacio Marra de Artiñano ◽  
Monika Sztajerowska ◽  
Jerónimo Carballo
Keyword(s):  
Multinational Firms ◽  
Cost Effective ◽  
Firm Level ◽  
Information Barriers ◽  
Investment Promotion ◽  
Promotion Policies ◽  
Level Data ◽  
Multinational Production ◽  
The Impact ◽  
The Invisible

Firms seeking to invest abroad must still confront important information barriers. As a consequence, a given country may provide suitable conditions for investment but remain invisible to multinational firms. Nearly all countries in the world have established investment promotion agencies (IPAs) to address these information barriers and put themselves on investors maps. Although IPAs are ubiquitous, the existing literature on the impacts of their activities is limited and only provides a view from the top, thus leaving governments without crucial inputs for designing and guiding their policy actions. Making the Invisible Visible fills in these knowledge gaps by zooming in on the effects of investment promotion policies and the mechanisms and channels thereof. To do so, it draws on the results of a highly detailed institutional survey of more than 50 IPAs and unique firm-level data on both the worldwide location of multinational firms foreign affiliates and IPA assistance for several LAC countries. Based on the results of impact evaluations using this novel micro data, the report presents robust new evidence on whether and how investment promotion works, what works in investment promotion, and when investment promotion works. In particular, it concludes that: (i) investment promotion has been (cost-)effective in attracting multinational firms and increasing LAC countries participation in multinational production; (ii) how IPAs are organized, what they do, and how they do it all influence these effects; (iii) the impact of IPA assistance has been greater when it consisted of specialized information services and was given to firms headquartered in countries and operating in sectors in which information barriers are more prominent. These findings can help countries in the region make better, more informed policy and operational decisions to take advantage of the opportunities that the current global context could create. They may thereby create a solid basis for long-term growth and sustainable development.

scholarly journals The Geography of NGO Activism against Multinational Corporations

2018 ◽  
Vol 34 (1) ◽  
pp. 143-163 ◽  
Author(s):  
Sophie Hatte ◽  
Pamina Koenig
Keyword(s):  
Multinational Corporations ◽  
Multinational Firms ◽  
Foreign Firms ◽  
Value Chains ◽  
Domestic Firm ◽  
Common Language ◽  
Governmental Organizations ◽  
Non Governmental Organizations ◽  
Multinational Production

Abstract To what extent do Non-Governmental Organizations (NGOs) monitor global value chains? While NGOs regularly denounce the behavior of multinational corporations throughout the world, their motivations for choosing campaign targets remain largely unknown. Using a new dataset on activists’ campaigns toward multinational firms, we estimate a triadic gravity equation for campaigns, involving the NGO, firm, and action countries. Our results point to a strong proximity bias in NGO activity: Distance, national borders, and lack of a common language all contribute to impede the intensity of campaigns. We estimate the distance elasticity of campaigns to be −0.2 and further document that NGOs strongly bias their actions toward home firms or foreign firms with home actions. A domestic firm is 3.45 times more likely to be attacked than a foreign one. Foreign firms headquartered in common language countries draw 1.63 times more campaigns. Overall, campaigns seem to be designed so as to include at least one element of proximity drawing the attention of consumers. This pattern questions the role of NGOs in the monitoring of multinational production operated in remote, unfamiliar locations.

Does the Presence of Foreign Firms Reduce Domestic Firms’ Financial Constraints in Sub-Saharan Africa?†

2019 ◽  
Vol 28 (4) ◽  
pp. 343-370
Author(s):  
Habtamu Tesfaye Edjigu ◽  
Nicholas Sim
Keyword(s):  
Financial Constraints ◽  
Foreign Firm ◽  
Bank Loans ◽  
Sub Saharan Africa ◽  
Foreign Firms ◽  
African Countries ◽  
Firm Level ◽  
Domestic Firms ◽  
Level Data ◽  
Sub Saharan

Abstract Firms in the SSAs (sub-Saharan African countries for short) face severe financial constraints. Because financial markets in the SSAs are underdeveloped, policymakers have sought after the establishment of foreign-owned firms in their countries to help, among others, alleviate the financial constraints faced by domestic firms. However, there is no empirical evidence that speaks to the association between foreign firm presence and domestic firms’ financial constraint. Using firm-level data spanning across 36 SSAs from the World Bank Enterprise Survey, we show that the increase in foreign firm presence can ease the financial constraints of domestic firms in the SSAs. One reason is that foreign-owned firms are not only less financially constrained, they are also less likely to apply for bank loans. Therefore, an increase in foreign firm presence may reduce the competition for loans and ease the financial constraints of domestic firms by improving their borrowing success.

scholarly journals Estimating the Hidden Costs of Environmental Regulation

2001 ◽  
Vol 76 (2) ◽  
pp. 171-198 ◽  
Author(s):  
Satish Joshi ◽  
Ranjani Krishnan ◽  
Lester Lave
Keyword(s):  
Environmental Regulation ◽  
Regulatory Compliance ◽  
Environmental Costs ◽  
Structured Interviews ◽  
Accounting Systems ◽  
Steel Mills ◽  
Level Data ◽  
Plant Level ◽  
Corporate Level

This paper examines the extent to which accounting systems separately identify all the costs of environmental regulation. We estimate the relation between the “visible” costs of regulatory compliance (costs that firms' accounting systems correctly classify as “environmental”) and “hidden” environmental costs embedded in other accounts. We use plant-level data from 55 steel mills to estimate hidden costs, and we follow up with structured interviews of corporate-level managers and plant-level accountants. Empirical results show that a $1 increase in the visible cost of environmental regulation is associated with an increase in total cost (at the margin) of $10–$11, of which $9–$10 are hidden in other accounts. The findings suggest that inappropriate identification and accumulation of the costs of environmental compliance are likely to distort costs in firms subject to environmental regulation.

Impacts of Environmental Regulation on Sustainable Economic Growth

2018 ◽  
Vol 9 (9) ◽  
pp. 749-773
Author(s):  
Jonathan Fisher
Keyword(s):  
Economic Growth ◽  
Environmental Regulation ◽  
Technical Change ◽  
Best Practice ◽  
Environmental Regulations ◽  
The European Union ◽  
Porter Hypothesis ◽  
The United Kingdom ◽  
Environment Agency ◽  
Sustainable Economic Growth

There is considerable concern and debate about the economic impacts of environmental regulations. Jonathan Fisher, former Economics Manager at the Environment Agency in England and Wales, reviews the available evidence on this subject. Section 2 presents estimates of the costs and benefits of environmental regulations. Section 3 examines the impacts of environmental regulations on economic growth, innovation and technical change as well as impacts on competitiveness and any movement of businesses to less pollution havens. He questions call for greater certainty regarding future environmental regulations, whereas in fact there should be calls for less uncertainty. This section then suggests how this could be achieved. This section then finishes with an overview of the available evidence. This includes an examination of the Porter Hypothesis that environmental regulations can trigger greater innovation that may partially or more than fully offset the compliance costs. Section 4 then sets out principles for how better environmental regulation can improve its impacts on sustainable economic growth and illustrates how the European Union (EU) Water Framework Directive is a good example of the application of these principles in practice. Section 5 reviews current and recent political perspectives regarding developments in environmental regulations across the EU and shows how the United Kingdom (UK) has successfully positively managed to influence such developments so that EU environmental regulations now incorporate many of these principles to improve their impacts on economic growth. Section 5.1 then examines the implications of Brexit for UK environmental regulations. Finally, Section 6 sets out some best practice principles to improve the impacts of environmental regulation on sustainable economic growth, innovation and technical change.

scholarly journals How Promotion Incentives and Environmental Regulations Affect China’s Environmental Pollution?

2021 ◽  
Vol 13 (5) ◽  
pp. 2907
Author(s):  
Shiwen Liu ◽  
Zhong Zhang ◽  
Guangyao Xu ◽  
Zhen Zhang ◽  
Hongyuan Li
Keyword(s):  
Environmental Pollution ◽  
Performance Appraisal ◽  
Environmental Regulation ◽  
Environmental Regulations ◽  
Synergistic Effects ◽  
Appraisal System ◽  
Interaction Terms ◽  
Cooperation Mechanism ◽  
Local Officials ◽  
The Government

As for the academics and policymakers, more attention has been given to the issue on how to reduce environmental pollution through the cooperation of environmental regulation and local officials’ promotion incentives. With the use of a city-level panel data of 266 Chinese cities from 2005 to 2016, this study preliminary explores the impacts of environmental regulations, local officials’ promotion incentives, and their interaction terms on urban environmental pollution at national and regional levels by using the spatial Durbin model. The results indicate that the impacts of environmental regulations and local officials’ promotion incentives on urban environmental pollution have achieved the desired goal with the other’s cooperation, and their interaction term’s coefficients on urban environmental pollution are significantly negative. Moreover, spatial heterogeneity is established, and the uneven development of urban environmental pollution among different regions deserves more attention. In order to effectively reduce the level of urban environmental pollution in China, the government should focus on such solutions as enhancing the implementation and supervision efficiency of environmental regulation, optimizing the performance appraisal system of local officials, improving the synergistic effects of environmental regulations and local officials’ promotion incentives, and establishing a multi-scale spatial cooperation mechanism based on both geographical and economic correlations.

scholarly journals Information related service trade within firms: evidence from firm-level data in Germany

2021 ◽  
Author(s):  
Kurt A. Hafner ◽  
Jörn Kleinert
Keyword(s):  
Multinational Firms ◽  
Economies Of Scope ◽  
It Services ◽  
Firm Level ◽  
It Service ◽  
Level Data ◽  
Related Service ◽  
Foreign Affiliates ◽  
Knowledge Intensive ◽  
Parent Companies

AbstractMulti-unit firms have productivity advantages over competitors because of their use of a non-rival asset—firm-specific knowledge—in several units. Using knowledge-intensive services leads to economies of scope in production by multi-unit firms. Such headquarter are usually supplied by parent companies and serve to link different firm units. Headquarter services are difficult to quantify in statistics or surveys, except when they cross-borders and the exchange of services between MNEs and their offshore subsidiaries becomes apparent. This study therefore focuses on IT service imports to explain productivity differences among foreign affiliates of multinational firms in Germany. The authors base the analysis on the population of foreign multinational firms active in Germany and analyze what effect the import of IT services has on their productivity. They find that IT headquarter service flows have significant impacts on foreign affiliates’ productivity in general and US affiliates in particular. As the average IT-service flows (per firm and partner) from parent countries are significantly higher for US affiliates than non-US affiliates, they conclude that the import of IT services from the parent-company is a source of the productivity advantages of US affiliates in Germany.

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