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The effects of labour intensity and pollution damage on government policies and location choice

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Article
This paper examines the welfare effects of emission taxes under a choice between an international joint venture (JV) and a full-ownership FDI (Foreign Direct Investment) by parent firms from a developed country (the North) and a developing country (the South), as well as their location and share decisions. If the South has a poor abatement technology, its best policy is to impose a relatively high emission tax to attract a full-ownership FDI. If it has a good abatement technology, the best policy is to impose a relatively low emission tax to attract the JV. Furthermore, deregulation of foreign ownership of the JV improves the quality of the environment.