International production chains and the pollution offshoring hypothesis: an empirical investigation

Aurélien Saussay and Natalia Zugravu-Soilita

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Most analyses of the impact of heterogeneous environmental policy stringency on the location of industrial firms have considered the relocation of entire activities – the well-known pollution haven hypothesis. Yet international enterprises may decide to only offshore a subset of their production chain – the so-called pollution offshoring hypothesis (POH). We introduce a simple empirical approach to test the POH combining a comprehensive industrial mergers and acquisitions dataset, a measure of sectoral linkages based on input-output tables and an index score of environmental policy stringency. Our results confirm the impact of relative environmental policy stringency on firms’ decisions to engage in cross-country M&As. Our findings also indicate that environmental taxation have a stronger impact on international investment decisions than standards-based policies. Further, we find that transactions involving a target firm operating in a sector upstream of the acquirer are more sensitive to environmental policy stringency, especially when that sector is highly pollution-intensive. This empirical evidence is consistent with the pollution offshoring hypothesis.

Keywords: FDI; pollution offshoring; global supply chain; firm location; environmental regulation; Centre for Climate Change Economics and Policy grant (ES/R009708/1); Climate SOLSTICE project JUST-DECARB (ES/V013971/1); PRINZ (ES/W010356/1); Leverhulme Early Career Fellowship (ECF/2021/536); Grantham Foundation for the Protection of the Environment (search for similar items in EconPapers)
JEL-codes: D20 F23 Q28 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2023-06-01
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-hme and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in Resources and Energy Economics, 1, June, 2023, 73. ISSN: 0928-7655

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Related works:
Journal Article: International production chains and the pollution offshoring hypothesis: An empirical investigation (2023)
Working Paper: International production chains and the pollution offshoring hypothesis: An empirical investigation (2023)
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