Consumers' Ecological Awareness, Environmental Regulation and MNCs¡¯ Choices in a Global Economy

Using a monopolistic competition model with mobile capital, in which firms may choose between ¡°dirty¡± or ¡°clean¡± technology, this paper investigates the relationship between the environment, trade liberalization, and the geographical and technical choices of multinational firms. Simulation results show that beyond environmental regulations, the ecological sensitivity of consumers can serve as a market mechanism that urges firms to self-regulate. In particular, local sensitivity to environmental issues amplifies the ¡°pollution haven¡± phenomenon, as induced by an environmental tax, whereas a more comprehensive environmental awareness attenuates or cancels this phenomenon gradually as liberalization progresses.