Do environmental regulations influence the location behavior of French firms?

The aim of this paper is to evaluate the impact of environmental regulations on the location choices by French firms of their industrial activities. We examine a sample of 3,856 import flows of French firms from foreign industrial subsidiaries in 1999. We first observe that the most pollution intensive goods are paradoxically imported relatively more from the most environmentally stringent countries. Then, we develop a simple static model based on the production cost minimization in order to control for heterogeneous factor costs within countries, distinguishing skilled labor, unskilled labor and capital. However, even with taking these effects into account, the pollution intensity of the imported goods remains positively related to the environmental stringency of the country where they are produced. This suggests that environmental compliance costs are not a major determinant of location compared to other effects, which are not limited to factor costs and can include, for example, agglomeration effects.