Working Paper: NBER ID: w25063
Authors: Itzhak Bendavid; Stefanie Kleimeier; Michael Viehs
Abstract: Despite widespread awareness of the detrimental impact of CO₂ pollution on the world climate, countries vary widely in how they design and enforce environmental laws. Using novel microdata about multinational firms’ CO₂ emissions across countries, we document that firms headquartered in countries with strict environmental policies perform their polluting activities abroad in countries with relatively weaker policies. These effects are largely driven by tightened environmental policies in home countries that incentivize firms to pollute abroad rather than lenient foreign policies that attract those firms. Although firms headquartered in countries with strict domestic environmental policies are more likely to export pollution to foreign countries, they nevertheless emit less overall CO₂ globally.
Keywords: pollution; production; climate change; CO2 emission; environmental regulation
JEL Codes: F23; N50; O13; P18; Q56; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strict home country environmental policies (F64) | Less CO2 emissions globally (F64) |
| Strict home country environmental policies (F64) | Less CO2 emissions at home (R21) |
| Strict home country environmental policies (F64) | More CO2 emissions abroad (F64) |
| Difference in policy strictness between home and foreign countries (F29) | Pollution levels abroad (Q53) |