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Trade and the Environment: The Role of Firm Heterogeneity

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  • Udo Kreickemeier
  • Philipp M. Richter

Abstract

This paper derives a new effect of trade liberalisation on the quality of the environment. We show that in the presence of heterogeneous firms the aggregate volume of emissions is influenced not only by the long-established scale effect, but also by a reallocation effect resulting from an increase in the relative size of more productive firms. We show how the relative importance of these effects, and hence the overall effect of trade liberalisation on the environment, is affected by the emission-intensity at the firm level: Aggregate emissions decrease when trade is liberalised if and only if firm-specific emission intensity decreases strongly with increasing firm productivity.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-06/cesifo1_wp3846.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3846.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3846

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Keywords: trade and environment; monopolistic competition; heterogeneous firms; environmental effects;

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References

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  1. Jonathan Eaton & Samuel Kortum, 2004. "An Anatomy of International Trade: Evidence from French Firms," 2004 Meeting Papers, Society for Economic Dynamics 802, Society for Economic Dynamics.
  2. Nicole Gürtzgen & Michael Rauscher, 2000. "Environmental Policy, Intra-Industry Trade and Transfrontier Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 17(1), pages 59-71, September.
  3. Frankel, Jeffrey & Rose, Andrew K., 2003. "Is Trade Good or Bad for the Environment? Sorting Out the Causality," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp03-038, Harvard University, John F. Kennedy School of Government.
  4. Alexander Haupt, 2006. "Environmental Policy in Open Economies and Monopolistic Competition," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 33(2), pages 143-167, 02.
  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," CEP Discussion Papers dp0643, Centre for Economic Performance, LSE.
  6. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  7. Marc J. Melitz & Daniel Trefler, 2012. "Gains from Trade When Firms Matter," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(2), pages 91-118, Spring.
  8. Alexander Haupt, 2000. "Environmental Product Standards, International Trade and Monopolistic Competition," International Tax and Public Finance, Springer, Springer, vol. 7(4), pages 585-608, August.
  9. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers 6707, National Bureau of Economic Research, Inc.
  10. Cole, Matthew A. & Elliott, Robert J.R. & Wu, Shanshan, 2008. "Industrial activity and the environment in China: An industry-level analysis," China Economic Review, Elsevier, Elsevier, vol. 19(3), pages 393-408, September.
  11. Copeland, Brian R & Taylor, M Scott, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 755-87, August.
  12. Cole, Matthew A. & Elliott, Robert J. R., 2003. "Determining the trade-environment composition effect: the role of capital, labor and environmental regulations," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 363-383, November.
  13. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198290506, October.
  14. Mazzanti, Massimiliano & Zoboli, Roberto, 2009. "Environmental efficiency and labour productivity: Trade-off or joint dynamics? A theoretical investigation and empirical evidence from Italy using NAMEA," Ecological Economics, Elsevier, Elsevier, vol. 68(4), pages 1182-1194, February.
  15. Cole, Matthew A. & Elliott, Robert J.R. & Shimamoto, Kenichi, 2005. "Industrial characteristics, environmental regulations and air pollution: an analysis of the UK manufacturing sector," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 121-143, July.
  16. Svetlana Demidova & Andrés Rodríguez-Clare, 2007. "Trade Policy under Firm-Level Heterogeneity in a Small Economy," NBER Working Papers 13688, National Bureau of Economic Research, Inc.
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Cited by:
  1. Yoshifumi Konishi & Nori Tarui, 2013. "Intra-Industry Reallocations and Long-run Impacts of Environmental Regulations," Working Papers, University of Hawaii at Manoa, Department of Economics 201307, University of Hawaii at Manoa, Department of Economics.

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