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Pollution Abatement and Production Outsourcing in India

Author

Listed:
  • Saibal Kar

    (Centre for Studies in Social Sciences
    IZA)

  • Sarmistha Banerjee

    (Jadavpur University)

Abstract

Production reorganization at the firm level as an outcome of environmental mandates is rarely studied in the literature. This paper shows that when exposed to abatement policy to address environmental pollution, a large number of firms from pollution-intensive industries in India outsource production as abatement cost rises. Static and dynamic panel data estimates for firms normalized for size heterogeneity from 7 major industries in India between 2008 and 2020 show robust patterns controlled for a set of covariates. Application of difference GMM estimates avows that pollution abatement cost has a significant positive impact on outsourcing, while improvement in productivity lowers the overall rate. Moreover, when energy prices are high but post-tax profit is positive, the firms outsource less even if the abatement cost rises.

Suggested Citation

  • Saibal Kar & Sarmistha Banerjee, 2022. "Pollution Abatement and Production Outsourcing in India," Journal of Industry, Competition and Trade, Springer, vol. 22(1), pages 83-97, March.
    • Handle: RePEc:kap:jincot:v:22:y:2022:i:1:d:10.1007_s10842-021-00371-7
    DOI: 10.1007/s10842-021-00371-7
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    1. Supratik Guha, 2023. "Does Rising Energy Prices Lead to Production Fragmentation? An Example from Indian Manufacturing Industries," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 24(1), pages 78-100, March.

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    More about this item

    Keywords

    Production outsourcing; Abatement cost; Firms; Panel data; India;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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