Offshoring Pollution while Offshoring Production?

Research summary: W e 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 ( LWC s). Consistent with the P ollution H aven H ypothesis, goods imported by U . S . firms from LWC s 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 LWC s. 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 strategies . Managerial summary: U sing confidential trade, production, and pollution data of more than 8,000 firms and 18,000 plants from the U . S . C ensus B ureau for years 1992–2009, we find that U . S . plants release less toxic emissions when their parent firm imports more from low‐wage countries ( LWC s). In addition, goods imported by U . S . firms from LWC s 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 LWC s. However, not all U . S . firms choose to “offshore pollution.” U . S . plants located in counties with greater institutional pressure for environmental performance offshore more, but more‐capable U . S . plants and firms offshore less . Copyright © 2017 John Wiley & Sons, Ltd.