Volume 2, ISSUE2/2011 - Review of Applied Socio-Economic ...

Pag׀ 143 ISSN: 2247-6172ISSN-L: 2247-6172Review of Applied Socio- Economic Research(Issue 2/ 2011)URL: http://www.reaser.eue-mail: editors@reaser.eu2.3. Environmental Impacts of Foreign Direct InvestmentFDI have positive and negative impacts on the environment. 129 The most essential ones are as follows:- effect of production volume,- effect of technology,- structural effect,- income effect.The effect of production volume expresses the level of environment pollution as a result of the increasedvolume of economic activity (output) in a host country, provided that the structure of output and the usedproduction technologies remains unchanged (i.e. unchanged emission coefficients), by both the foreign investorand his subcontractors. This effect flows mainly from the “Green Meadow Investment”, or from investment toexpansion of the already existing enterprises (i.e. not from fusions and acquisitions when only the owner ischanged.).Effect of technology means reducing the extent of damage to the environment as a consequence of using“cleaner” technologies. This effect arises when foreign investors bring technologies in the host country, which arein comparison with technologies of the local enterprises more friendly to the environment, for example they areless energy demanding and systems of environmental management are used in their application. This effect isusually manifested in developing countries.The experience has shown that multinational corporations have the tendency to observe consistenttechnological and environmental standards in the countries of their operation. 130 The reasons for such behaviourare as follows:- it is more effective for them than modification of their standards for the level required in theparticular host country. In order to “pass muster” also in the country with the most strictrequirements, the level of the applied standards is set relatively high;- environmental standards are an important element of the corporate identity and are considered tobe the key factor of competitiveness.The effort to implement environmental standards may however encounter with obstacles, such as forexample insufficiencies in the host country's infrastructure (e.g. missing drainage and sewerage network forcleaning and draining sewerage water). A problematic situation occurs when a foreign direct investor observesstricter environmental standards, but the production of intermediate products, or services that have negativeimpact on the environment “transfers” by means of outsourcing to local suppliers, who do not always observe thestiffened up standards. On the other hand, the positive technological effects activated by foreign investors may bemultiplied by taking over and introducing modern technologies and know-how by other local subjects (spill-overeffect), what consequently means that:- competitive producers will endeavour to improve their technologies and products, 131- suppliers will have to meet certain technological standards in case a foreign investor requires them todo so, and in this sense the foreign investor may even provide them technical support,- consumers will gradually change their attitude in favour of the products, in production of whichcertain environmental standards are observed, 132- employees, who will be transferred from the foreign investor's enterprise to the local producer'senterprise, will apply the acquired knowledge and experience.Structural effect represents the impact on the environment caused by the change of the sectoral structure,the foreign investor contributed to in the host country. This change depends mostly on the fact whether a host129 In practice it is not always easy to differ environmental impacts FDI and local enterprises activities. Marginal effects of FDI may undervarious circumstances occur at various levels, or may not be manifested at all.130 Foreign Direct Investment and the Environment. An Overview of the Literature. OECD, 1997. Available at:.131 To what extent will the competitors have the chance to “imitate foreign investor ( reverse engineering), will depend on the right tointellectual property applied in the host country.132 The above does not relate to the industries producing intermediate products (they are generally industries with great demand for naturalresources and polluting the environment), i.e. enterprises are not exposed to “pressure” to increase their environmental effectiveness from theside of consumers.