Essays on Offshoring, Environment, and Redistribution

Fabrice Naumann

AutorIn

Fabrice Naumann

Titel

Essays on Offshoring, Environment, and Redistribution

Zitierfähige Url:

https://nbn-resolving.org/urn:nbn:de:bsz:14-qucosa2-933494

Erstveröffentlichung

2024

Datum der Einreichung

09.01.2024

Datum der Verteidigung

01.07.2024

Abstract (EN)

This dissertation consists of three papers: two theoretical explorations of the relationship between globalization and unilateral policies and an empirical study on Foreign Direct Investment (FDI) and standardization. The first two chapters contribute to the literature on trade models with heterogeneous firms, focusing on offshoring as a form of trade in tasks. These tasks—one of which may be offshored to a lower-wage or lower-emission tax country—are inputs in the production of intermediate goods, which are then assembled into a final product. The intermediate goods sector is characterized by monopolistic competition, with firms varying in productivity according to Melitz (2003). Factor allocation is determined by an occupational choice mechanism based on managerial ability. This framework allows for an exploration of the connections between globalization, redistribution, and environmental policies. The third paper shifts focus to the financial aspect of globalization, contributing to the literature on the determinants of FDI, particularly the role of management standards. The theoretical models in Chapters 2 and 3 are set in an asymmetric two-country context where firms from a higher-wage country (the North) relocate parts of their production to a lower-wage country (the South). Both chapters examine unilateral policies in the North: Chapter 2 explores a redistribution policy involving an increase in the corporate tax rate, while Chapter 3 investigates an increase in the emission tax rate. Financially, this shift in production patterns mirrors North-South FDI. Chapter 4 examines the role of the ISO 9001 management standard in various FDI scenarios. Chapter 2 investigates the effects of a unilateral redistribution policy in an asymmetric two-country setting where globalization is modeled as offshoring. It combines the offshoring model from Egger et al. (2015) with a redistribution scheme from Kohl (2020), offering insights into how welfare states impact globalization. The framework involves two countries: a source and a host country. In the source country, individuals can choose to become workers or managers (owners of firms), while in the host country, this option is unavailable, creating asymmetry. Individuals in the source country differ in their managerial ability, and only the most capable become managers. These firms produce in the intermediate goods sector, characterized by monopolistic competition. Intermediate goods production involves two tasks: a non-routine task and a routine task, with the latter being offshorable to the host country. Offshoring allows firms to benefit from lower effective wages in the host country but involves fixed costs, so only the most productive firms choose this option. Profit income is taxed, representing a progressive income tax, while tax revenue is redistributed to individuals in the source country. The key finding is that increasing the tax rate in the source country alters factor allocation, making the worker occupation more attractive, increasing the number of workers, and decreasing the local wage rate. This adjustment reduces the marginal cost advantage of the host country, making offshoring less attractive and resulting in reshoring. This mechanism introduces an indirect channel through which a tax rate increase affects factor allocation, aggregate income, and inequality. While aggregate income decreases due to occupational choice distortion and tax-induced reshoring, inequality decreases. These results differ from related work where a tax increase is linked to decreased market share and increased attractiveness of exporting (Kohl and Richter, 2023). An extension considers the deductibility of offshoring fixed costs, affecting the tax base. A broader tax base due to lower deductibility reduces offshoring. Chapter 3 uses the same asymmetric two-country setting from Egger et al. (2015) but generalizes intermediate goods production to include emission generation, as modeled by Copeland and Taylor (1994). Firms now decide how to allocate labor between non-routine and routine tasks and how emission-intensive production should be. Emissions are taxed in both countries, with each government redistributing tax income. Unlike in Chapter 2, firms' offshoring decisions depend on wage differences and emission tax differentials. Managerial ability and firm productivity follow a Pareto distribution, leading to higher profits and lower emission intensity. The model examines the impact of a unilateral increase in the source country's emission tax rate, making emission-intensive production more expensive. This leads to several outcomes: productive domestic firms begin offshoring, domestic firms reduce their emission intensity, and the average emissions of domestic firms decrease (the technique effect). The increase in offshoring raises labor demand in the host country, increasing local wages and shifting offshoring firms' production towards more emission-intensive methods. Less productive firms enter offshoring, lowering average productivity and increasing emissions leakage. If offshoring is already high, the tax increase could lead to higher global emissions. Additionally, income shifts from the source to the host country, reducing between-country inequality but increasing within-country inequality in the source country. These findings contrast with models where an emission tax increase reduces global emissions (Egger et al., 2021b). An extension incorporating border carbon adjustment shows that such reforms prevent emission leakage, lowering global emissions but increasing global income losses. This chapter offers insights into the effects of policy instruments on climate change. Chapter 4 shifts focus to the financial aspects of cross-border activities, specifically the role of standardization in management practices, as exemplified by the ISO 9001 standard, in driving cross-border investments. This certification helps firms increase productivity, align with customer needs, and signal quality to potential partners and investors. Drawing on the literature on the role of institutions (North, 1991), globally recognized certificates can reduce frictions in cross-border investments, especially in countries with weak institutional quality. The analysis in Chapter 4 examines the effect of ISO 9001 certification diffusion on destination country inward FDI stocks, using bilateral panel data from 1995 to 2020. The estimation follows the gravity model literature, controlling for economic and institutional variables, as well as pair- and year-fixed effects. The findings reveal a positive impact of destination country certification on FDI inward stocks, particularly in North-South pairs, where lower-developed countries attract higher FDI stocks from developed countries when more local firms are certified. Origin country certification also boosts cross-border investments, especially for high-income countries, aligning with findings from Clougherty and Grajek (2008). These results highlight a novel determinant of cross-border investments, particularly relevant for firms in lower-developed countries facing higher transaction costs and information asymmetries due to weak institutions. The mechanism, beginning with the membership of national standardization bodies at ISO, suggests a policy channel through which the diffusion of certificates and, consequently, FDI can be encouraged.

Freie Schlagwörter (EN)

Offshoring, Environmental Policy, Heterogeneous Firms, Redistribution, FDI

Klassifikation (DDC)

330

Klassifikation (RVK)

QT 200

GutachterIn