Offshoring Production or Offshoring Pollution?

Abstract

We combine international trade data from the U.S. Census Bureau with Toxics Release Inventory data from the Environmental Protection Agency to investigate the impact of firms’ imports on toxic emissions by their U.S. plants. We find that goods imported from low-wage countries (LWCs) are more pollution-intensive than goods imported from the rest of the world. Moreover, plants release less toxic emissions and spend less on pollution abatement on American soil when their parent firms import more from LWCs. According to our estimates, a 10% increase in a plant’s parent firm’s share of imports from LWCs is associated with a 4% drop in the plant’ toxic emissions and a 3.75% reduction in pollution abatement expenditures. These effects are stronger for plants located in dirtier U.S. counties, where benefits from pollution reduction are expected to be the largest. These results provide some of the first large-sample empirical evidence that U.S. firms offshore both production and pollution to the developing world.