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Offshoring Pollution while Offshoring Production?

42 Pages Posted: 7 Oct 2014 Last revised: 7 Mar 2017

Xiaoyang Li

Shanghai Jiao Tong University (SJTU)

Yue Maggie Zhou

University of Michigan, Stephen M. Ross School of Business

Date Written: March 6, 2017

Abstract

We examine the role of firm strategy in the global effort to combat pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low-wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution-intensive industries. U.S. plants shift production to less pollution-intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more-capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms’ offshoring and environmental strategy.

Keywords: environmental strategy, pollution haven, offshoring, institutions, globalization, corporate social responsibility

JEL Classification: F18, Q56

Suggested Citation

Li, Xiaoyang and Zhou, Yue Maggie, Offshoring Pollution while Offshoring Production? (March 6, 2017). Strategic Management Journal, 2017; Ross School of Business Paper No. 1253; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2506164 or http://dx.doi.org/10.2139/ssrn.2506164

Xiaoyang Li

Shanghai Jiao Tong University (SJTU) ( email )

800 Dongchuan Rd
Minhang, Shanghai 200240
China

Yue Maggie Zhou (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

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