Agglomeration effects in foreign direct investment and the pollution haven hypothesis

Does environmental regulation impair international competitiveness of pollution-intensive industries to the extent that they relocate to countries with less stringent regulation, turning those countries into "pollution havens"? We test this hypothesis using panel data on outward foreign direct investment (FDI) flows of various industries in the German manufacturing sector and account for several econometric issues that have been ignored in previous studies. Most importantly, we demonstrate that externalities associated with FDI agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis. We include the stock of inward FDI as a proxy for agglomeration and employ a GMM estimator to control for endogenous time-varying determinants of FDI flows. Furthermore, we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of FDI recipients in the cross-section. When accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry. © 2008 Springer Science+Business Media B.V.

Impact of economic, regulatory, and patent policies on innovation in cancer chemoprevention.

Chemoprevention agents are an emerging new scientific area that holds out the promise of delaying or avoiding a number of common cancers. These new agents face significant scientific, regulatory, and economic barriers, however, which have limited investment in their research and development (R&D). These barriers include above-average clinical trial scales, lengthy time frames between discovery and Food and Drug Administration approval, liability risks (because they are given to healthy individuals), and a growing funding gap for early-stage candidates. The longer time frames and risks associated with chemoprevention also cause exclusivity time on core patents to be limited or subject to significant uncertainties. We conclude that chemoprevention uniquely challenges the structure of incentives embodied in the economic, regulatory, and patent policies for the biopharmaceutical industry. Many of these policy issues are illustrated by the recently Food and Drug Administration-approved preventive agents Gardasil and raloxifene. Our recommendations to increase R&D investment in chemoprevention agents include (a) increased data exclusivity times on new biological and chemical drugs to compensate for longer gestation periods and increasing R&D costs; chemoprevention is at the far end of the distribution in this regard; (b) policies such as early-stage research grants and clinical development tax credits targeted specifically to chemoprevention agents (these are policies that have been very successful in increasing R&D investment for orphan drugs); and (c) a no-fault liability insurance program like that currently in place for children's vaccines.

Encouraging clean energy investment in developing countries: what role for aid?

A large portion of foreign assistance for climate change mitigation in developing countries is directed to clean energy facilities. To support international mitigation goals, however, donors must make investments that have effects beyond individual facilities. They must reduce barriers to private-sector investment by generating information for developers, improving relevant infrastructure, or changing policies. We examine whether donor agencies target financing for commercial-scale wind and solar facilities to countries where private investment in clean energy is limited and whether donor investments lead to more private investments. On average, we find no positive evidence for these patterns of targeting and impact. Coupled with model results that show feed-in tariffs increase private investment, we argue that donor agencies should reallocate resources to improve policies that promote private investment in developing countries, rather than finance individual clean energy facilities.