The Structure of UK Outbound FDI and Environmental Regulation

We study whether the pattern of outbound Foreign Direct Investment (FDI) is influenced by host countries' environmental regulations. We employ a general empirical location model that captures interactions between industry attributes and host country characteristics in determining firm location. We use data on UK-based multinational activity in 64 countries and 23 industries over the period 2002-2006. Our results suggest a significant effect of environmental policy on the pattern of UK outbound FDI-a pollution haven effect. A one standard deviation increase in environmental laxity increases FDI (assets) in industries that are above-average pollution intensive by 28%.