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Offshoring Pollution While Offshoring Production

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  • Xiaoyang Li
  • Yue Maggie Zhou

Abstract

We examine the role of firm strategy in the global combat against pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low-wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution-intensive industries; U.S. plants shift production to less pollution-intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more-capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms’ choice of offshoring and environmental strategy.

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  • Xiaoyang Li & Yue Maggie Zhou, 2016. "Offshoring Pollution While Offshoring Production," Working Papers 16-09, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:16-09
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    environmental strategy; pollution haven; offshoring; institutional arbitrage; supply chain sustainability;
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