Bigger, Not Cleaner! Another Look at the Trade-Environment

In this paper, we use microdata from Chile to examine the relationship between export status and the environmental performance of firms. We proxy environmental performance by measures of emission intensity. We find that the correlation between export status and emission intensity depends on how the latter is measured. In particular, we find that export status is negatively correlated with emission intensity when we define emission intensity as emissions over sales, but it is uncorrelated when we use value added instead of sales. The difference between those two variables is that value added excludes the value of materials that the firm gets from other sources (outsourcing). Those intermediate inputs entail emissions that do not belong to the firm. Our data show that outsourcing is positively correlated with export status. Thus, using sales as an output measure overestimates firm activity, and, hence, exporters look cleaner than they actually are. We show, more formally, why the distinction between sales and value added is important, using a simple firm-level emission decomposition.