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International trade, CO2 emissions and heterogeneous firms

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  • Forslid, Rikard
  • Okubo, Toshihiro
  • Ulltveit-Moe, Karen-Helene

Abstract

This paper develops a model of trade with heterogenous firms, where firms invest in abatement technology and thereby have an impact on their level of emissions. The model shows how firm productivity and firm exports are both positively related to investments in abatement technology. Emission intensity is, however, negatively related to firms' productivity and exports. The basic reason for these results is that a larger production scale supports more fixed investments in abatement technology and, in turn, lower emissions per output. In contrast to the standard models of heterogeneous firms, firms' productivity, and thus export performance, is not exogenous, but endogeneously determined by firms' investment in abatement technology. We derive closed form solutions for firm-level abatement investments and emissions per output, and test the empirical implications of the model using detailed Swedish firm-level data. The empirical results strongly support the model.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8583.

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Date of creation: Sep 2011
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Handle: RePEc:cpr:ceprdp:8583

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Keywords: CO2-emissions; heterogeneous firms; international trade;

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Cited by:
  1. Cui, Jingbo & Qian, Hang, 2013. "The Effects of Exports on Facility Environmental Performance: Evidence from a Matching Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149550, Agricultural and Applied Economics Association.
  2. Monika Mrázová & J. Peter Neary, 2012. "Selection effects with heterogeneous firms," LSE Research Online Documents on Economics 51521, London School of Economics and Political Science, LSE Library.
  3. Cui, Jingbo & Lapan, Harvey & Moschini, GianCarlo, 2012. "Are Exporters More Environmentally Friendly than Non-Exporters? Theory and Evidence," Staff General Research Papers 35549, Iowa State University, Department of Economics.

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