Follow the smoke: The pollution haven effecton global sourcing
We examine whether and how for-eign environmental standards influence global sourcingdecisions. Taking a question-driven approach, we finda negative association between the stringency of acountry’s environmental standards and its share in USimports for 82 manufacturing industries across 77 coun-tries between 2006 and 2016. This pollution haveneffect holds not only for sourcing from owned foreignoperations (offshore integration), but also for sourcingfrom unrelated third parties abroad (offshore out-sourcing), and is stronger in industries with high toxicemissions and low technological intensity. Theseresults are robust across alternative measures of envi-ronmental stringency and to using the Kyoto Agree-ment as an instrumental variable. These findings shednew light on how firms use global sourcing, and espe-cially offshore outsourcing, to arbitrage across institu-tional environments.
