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

Saussay, Aurélien ORCID: 0000-0003-4786-0019 and Zugravu-Soilita, Natalia (2023) International production chains and the pollution offshoring hypothesis: an empirical investigation. Resources and Energy Economics, 73. ISSN 0928-7655

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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.

Item Type:	Article
Official URL:	https://www.sciencedirect.com/journal/resource-and...
Additional Information:	© 2023 The Authors
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HD Industries. Land use. Labor
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D20 - General F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q28 - Government Policy
Date Deposited:	06 Mar 2023 17:00
Last Modified:	18 Nov 2024 18:09
URI:	http://eprints.lse.ac.uk/id/eprint/118352

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