Is offshoring driven by air emissions? Testing the pollution haven effect for imports of intermediates

The pollution haven effect reflects the idea that stricter environmental policies foster the relocation of polluting activities and imports of pollution-intensive products. This paper develops a new approach for testing this effect for imported intermediate materials. It adds to the existing literature on pollution havens through this specific focus on imports of intermediates, which is of particular interest in view of the rise of offshoring within global value chains. The estimation strategy consists in including emission intensities as exogenous demand shifters in a system of cost share equations for variable input factors among which figure imported intermediates. Emissions of three types of air pollutants are analysed: greenhouse gases, acidifying gases and tropospheric precursor gases. The results provide evidence of a pollution haven effect for emissions of acidifying gases, in particular in footloose industries. No such evidence is found for the other types of pollutants. These results reflect the stricter enforcement of regulations for air quality, which act upon acidifying gases.