International environmental outsourcing
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In recent years there has been a dramatic increase in the number of firms shifting stages of their production processes overseas. In this paper we investigate whether firms outsource the dirtier stages of production to minimise domestic environmental regulation costs—a process broadly consistent with the pollution haven hypothesis. We develop a theoretical model of international environmental outsourcing that focuses on the roles played by firm size and productivity, transport costs and environmental regulations. We test the model’s predictions using a firm-level dataset for Japan and do find evidence of an ‘environmental outsourcing’ effect.
KeywordsEnvironmental regulations Trade Outsourcing Firm level
JEL ClassificationF18 F23 L51 L60 Q56 R3
Access to official micro-data was arranged by the Research Institute of Economy, Trade, and Industry (RIETI). We are grateful for the support of the Daiwa Anglo-Japanese Foundation grant number 7741/7948 and the Leverhulme Trust grant number F/00 094/BH. We thank Toshiyuki Matsuura for assistance with data preparation and Eric Strobl, Toby Kendall, Facundo Albornoz and participants at a RIETI meeting for helpful comments and suggestions.
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