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Do environmental regulations matter on Spanish foreign investment? A multisectorial approach

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Abstract

A gravity model is used to investigate the impact of the stringency and enforcement of the environmental regulation on Spanish investment flows abroad during the period 2008–2018. From the pollution haven hypothesis’ (PHH) perspective, the research tests if offshoring and outsourcing processes from Spanish multinational enterprises (MNEs) were due to movements through FDI of high-polluting industries seeking refuge in countries with a low standard of legal environmental protection framework. The analysis includes FDI into primary, manufacturing, construction, wholesale and retail, professional services, leisure services, utilities, and other services. When no sectoral approach is developed, PHH seems to be not held. However, the multisectoral perspective states that MNEs in primary and manufacturing sectors seek refuge in countries with a low standard of legal environmental protection framework.

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Notes

  1. Considered sectors are based on CNAE 2009 one-digit industry classification. Due to the limited number of observations available, several sectors had to be merged.

  2. In accordance, our model does not include any specific variable which represents Spain’s time-varying characteristics. This group of variables is collinear with the sector-year fixed effects. A similar model specification is employed by Poelhekke and Van der Ploeg (2015).

  3. The inclusion of country pair fixed effects (γij) tackles the potential endogeneity issues between FDI and bilateral agreements like FTAs, BITs, or EU membership (Baier and Bergstrand 2009; Bergstrand and Egger 2013).

  4. Moreover, during this period, only Croatia becomes a member. Given the inclusion of fixed effects in the model, the EU dummy in the base analysis only captures the impact of Croatia’s EU membership on Spanish FDI.

  5. Results with t-2 are not reported to save space but are available upon request. Estimates confirm the negative effect of environmental stringency on Spanish FDI in the primary sector, while in the case of manufacturing, the coefficient remains negative but loses significance. The results for the enforcement of environmental regulation in t-1 and t-2 are also available upon request; these estimates show that the enforceability of environmental regulation has a significantly larger negative effect on Spanish FDI in the primary sector.

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Acknowledgements

Incorporated.

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Upon reasonable request.

Funding

The first and forth authors wish to acknowledge the funding provided by the following institutions: (1) the Andalusian Regional Government (project SEJ-132), (2) the “Cátedra de Economía de la Energía y del Medio Ambiente” sponsored by the Red Eléctrica de España at the University of Seville, (3) the Spanish “Ministerio de Ciencia, Innovación y Universidades” for the financial support received from the research project (RTI2018–096725-B-I00), (4) the Departamento de Análisis Económico y Economía Política (Department of Economic Analysis and Political Economy (Universidad de Sevilla) at the University of Seville, and the (5) Universidad Autónoma de Chile (Chile). The second author wishes to acknowledge the financial support from Junta de Andalucía (SEJ 340) and Generalitat Valenciana (GV/2020/012).

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Authors and Affiliations

  1. Departamento de Análisis Económico y Economía Política, Universidad de Sevilla, Avda. Ramón y Cajal, 1, 41018, Sevilla, Spain

    Jose M. Cansino, Juan C. Molina-Parrado & Rocío Román-Collado

  2. Universidad Autónoma de Chile, Av. Pedro de Valdivia 425, Providencia, 758-0150, Santiago, Chile

    Jose M. Cansino & Rocío Román-Collado

  3. Universidad de Deusto, Avenida de las Universidades 24, 8007, Bilbao, Spain

    Federico Carril-Cacia

  4. Universidad de Granada, Paseo de Cartuja 7, 18011, Granada, Spain

    Federico Carril-Cacia

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  1. Jose M. Cansino
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  2. Federico Carril-Cacia
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  3. Juan C. Molina-Parrado
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  4. Rocío Román-Collado
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Contributions

JMC and FC conceived the idea and participated in writing the paper. JCM participated in writing the paper and processed data under the supervision of FC. RRC participated in writing the paper focusing on policy recommendations. All authors participated in Conclusions.

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Correspondence to Jose M. Cansino.

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Highlights

• Spain ranks the 14th in terms of FDI stocks abroad.

• MNEs in primary and manufacturing sectors seek refuge in countries with a low standard of legal environmental protection framework.

• When exploring heavily polluting sectors results support PHH for Spain.

• A lax environmental regulation creates incentives for Spanish industries to move their production part to another country.

• The green paradise hypothesis holds for FDI allocated in the utilities sector.

Annex

Annex

Fig. 1
figure 1

Stringency in environmental regulation (WEF). Note: Stringency in environmental regulation retrieved from the World Economic Forum (WEF). The global average does not include Spain. Authors’ own elaboration

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Fig. 2
figure 2

Environmental regulation enforcement (WEF). Note: Enforcement of environmental regulation retrieved from the World Economic Forum (WEF). The global average does not include Spain. Authors’ own elaboration

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Fig. 3
figure 3

CO2 emissions per capita (in tons). Note: CO2 emissions per capita in tons, retrieved from the World Bank. The global average does not include Spain. Authors’ own elaboration

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Table 10 Description of the variables included in the research and expected sign of coefficients
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Cansino, J.M., Carril-Cacia, F., Molina-Parrado, J.C. et al. Do environmental regulations matter on Spanish foreign investment? A multisectorial approach. Environ Sci Pollut Res 28, 57781–57797 (2021). https://doi.org/10.1007/s11356-021-14635-6

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