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Do environmental regulations affect the location decisions of multinational gold mining firms?

Koop, G.M. and Tole, L.A. (2008) Do environmental regulations affect the location decisions of multinational gold mining firms? Working paper. University of Strathclyde. (Unpublished)

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Abstract

This paper empirically analyzes the location decisions of the world's major gold mining �rms using a data set of political, economic, regulatory, infrastructural and investment risk variables observed for a large number of gold producing countries since 1975. The aim of the study is to determine the signi�cance of environmental stringency in forming location decisions while controlling for other potentially important variables that may a¤ect such decisions. Using both a conditional and a mixed logit regression approach, the study �nds consistently strong country location preferences among multinational gold mining �rms. These preferences paint a picture of an industry attracted to countries that are close to their head o¢ ce, provide a business environment characterized by low levels of �nancial risk and high levels of political stability and predictability in mining operations. While mining �rms also appear to be attracted to countries that have a clean environment is less strong and uniformly robust. This preference for a clean environment may itself be reflective of the strong desire to go to countries that are e¢ ciently run, provide clear rules and regulations, and are secure and predictable in their operations. Moreover, while they prefer to go to countries with low levels of corruption, this characteristic seems less important than the desire for security, transparency and stability in government and operations.Taken together, these preferences for a clean, well-run countries may reflect the adoption by mining �rms of a deliberate strategy intended to minimize the risks to their hugely expensive and immobile investments.