Multinationals, research and development, and carbon emissions: international evidence

Abstract

ABSTRACT We investigate the relationship between research and development (R&D) and firm-level carbon emissions to determine whether firm type matters. Multinational corporations (MNCs) with high-level R&D expenditure have a greater ability than domestic companies to generate technologies that will contribute to controlling environmental pollution and climate change. However, we know less about whether MNCs contribute to reducing carbon emissions worldwide, because they also have the ability to overcome controls on pollution levels by shifting their production facilities from regions with more restrictions to those with fewer restrictions. The sample we use includes roughly 20,000 firm-year observations from 44 countries for the period 2003-2019. We find that MNCs decrease their carbon emissions by increasing their R&D spending more than domestic companies do. We further demonstrate that foreign direct investment (FDI) creates opportunities for MNCs to adjust their overall carbon emissions if they are located in developed countries. Key policy insights R&D investment in low-carbon technologies and practices decreases carbon emissions intensity and the impact on average is larger for MNCs than for domestic companies, showing that firm-type matters to emission reduction outcomes. MNCs manage their geographically diversified production so as to avoid reducing overall net global carbon emissions. MNCs may seek to operate in places that are weaker in enforcement of emissions reduction, which in turn raises their net global carbon emissions. MNCs located in developed countries are comparatively more important as corporate actors to drive carbon emission reductions due to changing location of operations.