Inviting MNFs’ green offshoring: Is it an effective way to coordinate economic and environmental sustainability?

Abstract

Nowadays, to achieve sustainable development, many developing countries are worrying about the deteriorating lock-in issues of high carbon. Therefore, policies including tax break, consumer green education, and subsidy for green production are set out to motivate multinational firms (MNFs) to build green factories in developing countries. This results in transboundary issues that induce MNFs' offshoring besides the traditional consideration of production cost. In this paper, we formulate the tradeoffs of an MNF headquartered in a developed country in building green factories overseas in developing countries that help the latter reshape urban infrastructure and reduce greenhouse gas (GHG) emissions. We show that the MNF's offshoring cost (e.g., the supply chain decentralization loss and the overseas delivery time cost) can be compensated by the tax-planning benefit because of the developing countries' tax break policies. We also show that the softened downstream market competition, improved consumer green awareness, and subsidy for green production serve as alternative weapons to encourage the MNFs to build green factories in developing countries.