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

Aurélien Saussay and Natalia Zugravu-Soilita

Resource and Energy Economics, 2023, vol. 73, issue C

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 (search for similar items in EconPapers)
JEL-codes: D22 F23 F64 Q28 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: 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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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:73:y:2023:i:c:s092876552300012x

DOI: 10.1016/j.reseneeco.2023.101357

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