Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14565.
Length: Date of creation: Dec 2008 Date of revision: Handle: RePEc:nbr:nberwo:14565
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Arik Levinson & M. Scott Taylor, 2008.
"Unmasking The Pollution Haven Effect,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, 02.
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