THE IMPACT OF ENVIRONMENTAL STRINGENCY ON THE FOREIGN DIRECT INVESTMENTS OF THE OECD COUNTRIES

The main objective of this paper is to evaluate the impact of the environmental stringency on trade and the foreign direct investments (FDI) in particular. To do so, both theoretical and empirical investigations are performed. During the empirical investigation, an index of environmental sensitivity performance (IESP) is constructed for the OECD countries. Additionally, the main determinants of the OECD countries' FDI outflows are also analysed alongside with the environmental sensitivity variable for the countries in the sample.The empirical analysis in this paper finds some evidence to suggest that environmental stringency has an important impact on the FDI outflows of the OECD countries. The impact of the degree of environmental stringency on the FDI is significantly positive implying a direct relationship between FDI outflows and relative environmental sensitivity performance of the OECD countries.