Theoretical Analysis of Environment and Foreign Direct Investment

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The results of this research are composed of two papers on environment and foreign direct investment (FDI).The first paper (chapter) analyzed how environment affects the structure of comparative advantages and gains from trade. Defining the environment as a natural environment, we assume that the private property rights on the natural resource are fully applied in a developed country, but the usage of the natural resource is ruled by commons in a developing country. Both countries are assumed to be identical in all respect other than the property right system on the natural resource. The main results pointed out that (1) the developing country has a comparative advantage in the natural resource intensive good in a short-run, but she may loose it in the long-run, and (2) the developing country may lose from trade in the short-run, but she may gain from trade in the long-run.The second paper (chapter) analyzed the structure of the optimal taxation in a small open economy with FBI where the domestic consumption emits pollution. We show the following results. In the case where only a consumption tax is available, the tax should be equal to the marginal damage of the domestic consumption. In the case where a domestic production tax and import tariff are available, the production tax should be higher than the import tariff and the import tariff should be equal to the marginal damage if there exist FDI. On the other hand, without FDI, both the production tax and import tariff should be equal to the marginal damage. This result implies that a presence of FDI plays an important role in the optimal tax and tariff structure.