Study of the relationship between US outward foreign direct investments and the environment in OECD Countries

There is significant increase in the focus into the environmental issues in global finance. Investors, companies, policymakers, and the broader public have triggered dramatical shift in business and investment practices, due to the recognition of the implications of these issues on economic and social sustainability. Researchers attempts to connect environmental policies with economic instruments to facilitate a deeper understanding of the long-term relationship between both areas. These studies are driven by the developed concerns about the climate change and the increase understanding of businesses environmental impact. Countries now motivating the companies to demonstrate a commitment to reducing their environmental footprint through sustainable operations, responsible sourcing, waste management, and energy-efficient practices. Considering all the previously mentioned factors, The purpose of this study is to understand how the environmental policies affect the foreign direct invesment of the US. This study started with the definition, measures, and recent trends in Foreign Direct Investment (FDI). Using the OLI Framework, Chapter one provids perspectives from both source and host countries. To provide Foundation to the relationship between the FDI and Environment regulation stringency from the literature point of view, the chapter presents the Pollution Haven Hypothesis and the hypothesis by Michael E. Porter and Claas van der Linde. Second chapter, demonstrate the relationship between Environmental Policy Stringency (EPS) and FDI by showing some methodologies for measuring EPS, including the OECD's composite index. The chapter aims to explain the complex links between FDI, environmental regulations, and their combined impact on international economics. Chapter Three focuses on FDI in the United States, providing a detailed analysis of the inward and outward FDI flows. It offers an examination of the country's FDI landscape, illustrating its impact on both the national and global economic stage. The final chapter presents an econometric model and data analysis of the US's outward FDI and its correlation with the Environmental Policy Stringency index. The chapter employs Wagner & Timmins' 2009 study as the foundation for the econometric model, incorporating two methodologies: the First Difference Model and the Dynamic Panel Model using the Generalized Method of Moments (GMM) estimator. Both methodologies provide a comprehensive, data-driven insight into the FDI-EPS relationship. The findings are partially aligned with the initial estimations and Wagner & Timmins' (2009) results.