Environmental Outsourcing


In recent years there has been a dramatic increase in the number of firms shifting stages of their production processes overseas. In this paper we investigate whether firms outsource the dirtier stages of production to minimise domestic environmental regulation costs – a process broadly consistent with the pollution haven hypothesis. We develop a theoretical model of environmental outsourcing that focuses on the roles played by firm size and productivity, transport costs and environmental regulations. We test the model's predictions using a firm-level data set for Japan and do find evidence of an 'environmental outsourcing' effect.


Environmental regulations, trade, outsourcing, outsourcing, firm-level.

JEL Classification

F18, F23, L51, L60, Q56, R3


Matthew A. COLE
Department of Economics, University of Birmingham, UK

Department of Economics, University of Birmingham, UK

Toshihiro OKUBO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059