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Offshoring, trade and environmental policies: Effects of transboundary pollution

Author

Listed:
  • Keisuke Kawata

    (Graduate School for International Development and Cooperation)

  • Yasunori Ouchida

    (Graduate School of Social Science, Hiroshima University)

Abstract

This study develops a two-country model, Home and Foreign, with offshoring and environmental spillover. A final good producer in Home can produce (homogeneous) final goods using customized inputs produced by its partner-supplier in Foreign. The intermediate input price is determined by Nash bargaining, presenting a hold-up problem. Additionally, input production causes transboundary pollution. Home and Foreign governments can set trade taxes. Moreover, the Foreign government can set the environmental standard. This model demonstrates that, under no international policy agreement, both the environmental standard and the quantity of the intermediate input are lower than the first-best levels. This inefficiency persists even if both governments conclude an agreement.

Suggested Citation

  • Keisuke Kawata & Yasunori Ouchida, 2013. "Offshoring, trade and environmental policies: Effects of transboundary pollution," IDEC DP2 Series 3-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    • Handle: RePEc:hir:idecdp:3-8
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    References listed on IDEAS

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    Cited by:

    1. Saussay, Aurélien & Zugravu-Soilita, Natalia, 2023. "International production chains and the pollution offshoring hypothesis: An empirical investigation," Resource and Energy Economics, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Offshoring; Intermediate input trade; Emission spillover; Environmental standard; Incomplete contract;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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