CGPA Working Paper: Preventing pollution havens? Environmental Provisions in Preferential Trade Agreements and Foreign Direct Investment

The present paper re-visits the link between cross-border mergers and acquisitions (M&As) and bilateral trade liberalization. It presents new evidence on the extent to which investment related environmental provisions (IEP) embedded in Preferential Trade Agreements (PTAs) moderate the impact of PTAs on cross-border M&As. To this end, we estimate a gravity model. Our findings suggest that IEPs diminish the positive effect of PTAs on bilateral M&As. We show that IEP undermines the positive effect of PTAs on investments flows between countries with high environmental stringency.