Environmental Outsourcing

Author Name OKUBO Toshihiro (Kobe University) / Matthew A. COLE (University of Birmingham) / Robert J.R. ELLIOTT (University of Birmingham)
Creation Date/NO. October 2010 10-E-055
Research Project Empirical Analysis of Trade Policy and Corporate Behavior
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Recent years have witnessed 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 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 data set for Japan. We find evidence of an 'environmental outsourcing' effect although this is mitigated by transport costs and other factors related to dirty good production.

Published: Matthew A. Cole, Robert J. R. Elliott, Toshihiro Okubo, 2014. "International Environmental Outsourcing," Review of World Economics, Vol. 150(4), pp. 639-664.