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IZA Discussion Paper No. 15919
February 2023
Trade Policy Uncertainty, Offshoring, and the Environment: Evidence from US Manufacturing Establishments
Jaerim Choi, Jay Hyun, Gueyon Kim, Ziho Park

We study long-run environmental impacts of trade liberalization on US manufacturing by exploiting a plausibly exogenous reduction in US trade policy uncertainty: the conferral of Permanent Normal Trade Relations (PNTR) to China. Using detailed data on establishment-level pollution emissions and business characteristics - including trade activities and global subsidiary information - from 1997 to 2017, we show that establishments reduce toxic emissions in response to a reduction in trade policy uncertainty. Emission abatement is mainly driven by a decline in pollution emission intensity, and not by establishment exits or a reduction in production scale. Emission reduction is more pronounced for (i) establishments with foreign sourcing networks and (ii) those under more stringent environmental regulations. We provide further evidence that supports the pollution haven hypothesis whereby offshoring is central to the mechanism - US manufacturers begin to source from abroad and establish more subsidiaries in China after PNTR, especially those that emit pollutants heavily.

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Mark Fallak
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Olga Nottmeyer
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+352 585-855-501
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Christina Gathmann
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Das IZA@LISER-Netzwerk ist eine weltweite Gemeinschaft für exzellente Forschung in der Arbeitsmarktökonomie und angrenzenden Fachgebieten. Nach dem Wechsel von Bonn wird das Netzwerk nun am Luxembourg Institute of Socio-Economic Research (LISER) koordiniert.

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