Does Lax Environmental Regulation Attract FDI When Accounting for "Third-Country

This paper investigates if di¤erences in environmental regulations can inu-ence FDI ows in a multi-country setting taking into account the so-called third-country " e¤ect. We examine bilateral FDI ows using a new extended OECD investment database which covers great number of host countries and a long sample period (1981-2005). The \u85ndings based on a spatial gravity-like model are largely plausible across speci\u85cations and con\u85rm the existence of a negative relationship between FDI and environmental stringency, once we correct for endogeneity and spatial dependence. The evidence of a positive "third-country " e¤ect for FDI sug-gests the prevalence of complex FDI from developed to developing countries. The spatial structure of the model allows also to underline the possible existence of competition in environmental standards between countries to attract FDI