International Engagement and the Greenness of Manufacturing Firms

This paper examines how international engagements shape heterogeneity in the greenness of Japanese manufacturing firms. Using a new firm-level dataset, we construct intensity-based greenness indicators distinguishing between the greenness of market facing products and the greenness of more governance-driven production processes. Our empirical results are three-fold. First, green activity is widespread across Japanese manufacturing sectors but is predominantly process-oriented, with the greenest firms concentrated in a small subset of industrial activities. Second, greenness is not linked to internationalization in general, but to firms being embedded in global value chains (GVCs), particularly in Western oriented networks, and this association is stronger for green processes. Third, we identify a vulnerability whereby product greening does not attenuate tariff induced sales losses among internationally engaged firms, and green processes do appear to amplify tariff exposure, especially for GVC participants. Overall, the results highlight that going green is multidimensional and that environmental process compliance interacts with GVC integration in shaping firms’ resilience to trade policy shocks under a trend towards further geoeconomic fragmentation.