Environmental policy stringency and foreign direct investment: A study considering the impact of country-income level

Do stricter environmental laws negatively impact FDI decisions every time? Using a panel of 38 countries from 2003 to 2020, this study investigates the relationship between environmental policy stringency and foreign direct investment (FDI) inflows. The policy index is decomposed into three sub-categories: market-based policies, non-market-based policies, and technology support policies. The moderating effect of high-income countries on these policies is also examined. The results show that environmental policy stringency, specifically non-marketbased policies and technology support policies, have positive and significant impact on FDI inflows. The relationship between market-based policies and FDI inflows is not significant, but still positive. High income countries with strict environmental policies attract more FDI into their countries.