The Impact of Unilateral Climate Policy with Endogenous Plant Location and Market Size Asymmetry
AbstractThis paper analyses the impact of unilateral climate policy on firms’ international location strategies in emission-intensive sectors, when countries differ in terms of market size. The cases of partial and total relocation via foreign direct investment are separately considered. A simple international duopoly model highlights the differences between short-term and long-term effects. In the short-term no change in location is a likely outcome in very capital-intensive sectors, and when there is a strategy shift this takes the form of partial instead of total relocation. In the long-run total relocation becomes a feasible outcome. However we found that, when tighter mitigation measures are introduced by the larger country and unit transport cost is high, with a pronounced market asymmetry the probability of firms not relocating abroad is high even in the long-term. The welfare implications of unilateral environmental measures are assessed considering global industrial pollution and accounting for shifts in location strategy.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.107.
Date of creation: Sep 2010
Date of revision:
Foreign Direct Investment; Carbon Leakage; Climate Policy; Relocation; Transport Costs; Welfare;
Other versions of this item:
- Francesca Sanna-Randaccio & Roberta Sestini, 2012. "The Impact of Unilateral Climate Policy with Endogenous Plant Location and Market Size Asymmetry," Review of International Economics, Wiley Blackwell, vol. 20(3), pages 580-599, 08.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-ENE-2010-10-02 (Energy Economics)
- NEP-ENV-2010-10-02 (Environmental Economics)
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- nada, BELHADJ & GABSZEWICZ, Jean J. & TAROLA, Ornella, 2013. "Social awareness and duopoly competition," CORE Discussion Papers 2013043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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