DP16090 Imports and the CO2 Emissions of Firms
In this paper we explore how importing of intermediate goods affect the carbon intensity of firms in the Swedish manufacturing sector. By exploiting exogenous shocks in foreign export supply of intermediate goods, we estimate that a 10 percent increase in imports causes a 5 percent reduction in carbon intensity. Contrary to popular beliefs, we also find that most of this effect cannot be explained by offshoring of dirty stages of the production process. Instead, a mediation analysis suggests that the productivity-enhancing effect of importing is a more important driver of the reduction in firms’ carbon intensity. To account for general equilibrium effects we also develop a model in which heterogeneous firms make endogenous decisions regarding production, importing and emissions. A calibration of this model based on our empirical results suggests that the elasticity of aggregate carbon emissions with respect to import trade costs is about 0.17.