Emerging Market Penetration And Emissions Performance

Firms move to emerging markets to sell their products, reach new markets, and to strategically offshore or outsource their production and supply chains. However, they may also take advantage of loose environmental regulations and weak protection of existing laws in emerging market countries. Anecdotal evidence and media reports claim that increased firm activity in emerging economies such as China, India, Brazil, among others, has resulted in more significant environmental pollution. However, statistical evidence is lacking in this area. This research consequently investigates the impact of two forms of emerging market presence: the extent of offshoring penetration and extent of sales penetration on emissions performance. We conduct an empirical study using a panel dataset consisting of 300 global firms across various industries, along with their emission levels and emerging market penetration levels. Analysis of over six years of data from 2007 to 2012 shows that even after factoring in the endogeneity related to entry into emerging markets, firms that have a greater degree of emerging market penetration do indeed have higher emissions. We also find that a firm's beneficial actions related to environmental corporate social performance attenuate the relationship between emerging market penetration and emissions, whereas a firm's harmful actions related to environmental corporate social performance amplifies this relationship. Implications of this study for a firm's future strategic location and offshoring decisions are discussed and presented.