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The Effect of Offshoring on Firm Emissions

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  • Yen Nhi Nguyen

    (Johannes Gutenberg University Mainz)

Abstract

This paper analyses the effect of unilateral environmental policies on global emissions under trade in intermediate inputs. I develop a model of heterogeneous firms with two countries (North-South) in which North firms can invest in abatement activities but also offshore the pollution-intensive part of the production in South. The model suggests that a unilateral increase in North emission tax promotes more abatement activities of the least productive firms while the most productive firms stop investing in abatement and offshore polluting production steps. Marginal increases in North emission tax decrease global emissions when the relative emission tax is low but increase global emissions when it is high. Tests using German firm-level data support the central prediction of the model: offshoring activities reduce firms’ domestic emission intensity, particularly when firms offshore in countries with lax environmental regulations.

Suggested Citation

  • Yen Nhi Nguyen, 2023. "The Effect of Offshoring on Firm Emissions," Working Papers 2315, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    • Handle: RePEc:jgu:wpaper:2315
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    File URL: https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_2315.pdf
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    References listed on IDEAS

    as
    1. Udo Kreickemeier & Philipp M. Richter, 2014. "Trade and the Environment: The Role of Firm Heterogeneity," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 209-225, May.
    2. Michel, Bernhard, 2013. "Does offshoring contribute to reducing domestic air emissions? Evidence from Belgian manufacturing," Ecological Economics, Elsevier, vol. 95(C), pages 73-82.
    3. Cole, Matthew A. & Elliott, Robert J. R., 2003. "Determining the trade-environment composition effect: the role of capital, labor and environmental regulations," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 363-383, November.
    4. Bernhard Klaus Michel, 2013. "Working Paper 05-13 - Does Offshoring Contribute to Reducing Air Emissions? Evidence from Belgian Manufacturing," Working Papers 1305, Federal Planning Bureau, Belgium.
    5. Forslid, Rikard & Okubo, Toshihiro & Ulltveit-Moe, Karen Helene, 2018. "Why are firms that export cleaner? International trade, abatement and environmental emissions," Journal of Environmental Economics and Management, Elsevier, vol. 91(C), pages 166-183.
    6. Richter, Philipp M. & Schiersch, Alexander, 2017. "CO2 emission intensity and exporting: Evidence from firm-level data," European Economic Review, Elsevier, vol. 98(C), pages 373-391.
    7. von Graevenitz, Kathrine & Rottner, Elisa, 2020. "Energy use patterns in German manufacturing since 2003," ZEW Discussion Papers 20-008, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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