Multinational Firms’ Dynamic Decisions on Offshoring and Clean Technology Adoptions∗

This paper develops a dynamic general equilibrium model to analyze firms’ joint decisions on production offshoring and clean technology adoptions when facing different labor productivities and environmental regulations between home country and offshoring host country. During their decision processes, both workers’ wages and emission levels of related countries are endogenously determined. Later this model is calibrated to match the data on manufacturing workers’ wages in the U.S. and China’s foreign invested enterprises and both countries’ PM2.5 emissions over 1999-2013. This paper quantifies the offshoring levels which is measured by the share of total low-skilled labor-intensive manufacturing production processes shifted from U.S. to China. My paper also gives the long-run predictions on future offshoring level and environmental qualities in both countries. Besides, different counterfactual policy experiments are conducted and pollution haven effects on offshoring is estimated in this paper. (JEL F18, F23, D21, J31, Q52, Q56) ∗Please check the latest version at my web page http://www.ssc.wisc.edu/ xmeng/research †Department of Economics, University of Wisconsin-Madison. Email:[email protected]. I am grateful to my advisers Bob Staiger, Enghin Atalay, Alan Sorensen and Charles Engel for their guidance and support at all stages of this project. I express my thanks to Jim Markusen, Keller Wolfgang, Kerry Smith, Laura Taylor, Ivan Kandilov and seminar participants at Wisconsin, 8th AERUS at Purdue and Camp Resources XXII at NC State.