What is the implication of countries adopting stricter environmental policy to attracting business?
The implication of countries adopting stricter environmental policy to attracting business generally result in higher production costs and lower productivity in firms. This as a result can lead multinational corporations to shift investment and production to less environmentally strict locations. Environmental regulation and policy can also affect the choice of production technology. We are well aware that different technologies have very different environmental consequences. Many multinational corporations choose cleaner, often more expensive, technologies at plants facing more strict regulation. Research and evidence has shown that environmental regulations impose high costs on multinational corporations wishing to conduct business in countries with strict environmental restrictions and laws. As a result, these laws can produce lower productivity.
The measurement of this lower productivity can assist in measuring the costs of regulations for multinational corporations. These costs of regulation can make multinational corporations more likely to open plants in jurisdictions with less regulations. This can make multinational corporations invest less in locations where regulations are stricter along with choosing production technologies based on local regulations. It is obvious with climate change that the overall benefits greatly exceed their costs; however, a cost benefit analysis is critical for companies to assess profitability potential along with their bottom line and costs and benefits across specific regulations varies widely. In general, society gains from environmental regulations whose benefits exceed their costs.
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