Environmental Responsibility and Fdi: Do Firms Relocate Their Irresponsibilities Abroad?

Abstract: The goal of this paper is to study the influence of corporate environmental responsibility (CER) and national environmental standards on the location choices of the 600 biggest European firms. By using the environmental score provided by Vigeo , we are able to test the influence of the environmental performances of firms. We find a negative interaction effect between these environmental performances and national environmental regulations. Thus, we argue that national standards can be a substitute for CER. All things being equal, firms with better environmental performances tend to be located in dirtier countries. CER can therefore be seen as an answer to the location choices of firms which invest in countries with poor environmental policies. This result is only valid when considering de facto environmental standards, not de jure environmental standards. It suggests a possible strategic behavior of firms which exploit these differences between formal environmental regulations and their effective enforcement.