Imported inputs reduce carbon intensity: Evidence from Indian manufacturing firms

We examine the role of imported inputs in reducing carbon emission-intensity of Indian manufacturing firms during 1993-94 through 2018-19, and discern a differential impact between single-product versus diversified multi-product firms. Beginning with fixed effects panel regression analysis, followed by regression analysis of a propensity-score matched sample to control for endogeneity, we find robust evidence that imported intermediate inputs and imported capital goods significantly reduced firms’ emission intensity. Consistent with the literature, we find that more productive firms and exporting firms have lower emission-intensity. For multi-product firms, environmental benefit of imported capital goods is particularly pronounced compared to single-product firms. Moreover, in-house R&D exhibited significant complementarity with imported capital goods in reducing emission intensity for less-productive multi-product firms. We conclude that imported inputs together with own R&D will enhance firm environmental performance and help India achieve its Nationally Determined Contribution commitment in climate mitigation under the Paris Agreement.