The Effect of Offshoring on Firm Emissions

Yen Nhi Nguyen ()
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Yen Nhi Nguyen: Johannes Gutenberg University Mainz

No 2315, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität 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.

JEL-codes: F10 F14 F18 F23 Q52 Q54 Q56 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-10-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
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https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_2315.pdf First version, 2023 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:2315

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