Trade, Technology, and the Environment: Why Have Poor Countries Regulated Sooner?
AbstractCountries who adopted regulation of coal-fired power plants after 1980 generally did so at a much lower level of per-capita income than did early adopters -- poor countries regulated sooner. This phenomenon suggests that pioneering adopters of environmental regulation provide an advantage to countries adopting these regulations later, presumably through advances in technology made by these first adopters. Focusing specifically on regulation of coal-fired power plants, we ask to what extent the availability of new technology influences the adoption of new environmental regulation. We build a general equilibrium model of an open economy to identify the political-economy determinants of the decision to regulate emissions. Using a newly-created data set of SO2 and NOX regulations for coal-fired power plants and a patent-based measure of the technology frontier, we test the model's predictions using a hazard regression of the diffusion of environmental regulation across countries. Our findings support the hypothesis that international economic integration eases access to environmentally friendly technologies and leads to earlier adoption, ceteris paribus, of regulation in developing countries. By limiting firms' ability to burden shift, however, openness may raise opposition to regulation. Our results suggest that domestic trade protection allows costs to be shifted to domestic consumers while large countries can shift costs to foreign consumers, raising the likelihood of adoption. Other political economy factors, such as the quality of domestic coal and election years, are also important determinants.
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Date of creation: Aug 2008
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Find related papers by JEL classification:
- F18 - International Economics - - Trade - - - Trade and Environment
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- 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
- 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-2008-09-05 (All new papers)
- NEP-ENV-2008-09-05 (Environmental Economics)
- NEP-INT-2008-09-05 (International Trade)
- NEP-POL-2008-09-05 (Positive Political Economics)
- NEP-REG-2008-09-05 (Regulation)
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