Import Competition and Environmental R & D 3 I . The Question : Does Competition Affect Environmental R & D and Emissions Reduction ?

This paper develops evidence that import competition reduces U.S. manufacturers’ investments in environmental research and development (R&D). Environmental R&D is R&D with the goal of reducing emissions that damage the environment. Concerns about environmental problems warrant the focus of corporations’ R&D investments. Competition spurs environmental R&D when all of the competitors are subject to the same expectations for environmental performance. When faced with import competition, domestic companies – perhaps to remain competitive with foreign firms that do not incur costs of environmental R&D – reduce their voluntary environmental R&D investments that improve the environmental performance of industry. The evidence suggests the need for diplomacy to ensure worldwide uniformity in expectations for environmental performance.