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Do national borders matter? Intranational trade, international trade, and the environment

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  • McAusland, Carol
  • Millimet, Daniel L.

Abstract

We develop a theoretical model identifying channels through which trade impacts the environment. First, trade decouples some of regulation's costs from its benefits, prompting demand for stringent environmental regulations. Second, trade provides consumers with access to new varieties of goods; the associated income (substitution) effect raises (lowers) demand for strict regulation. The model predicts (1) international trade to be more environmentally beneficial than intranational trade due to a stronger decoupling effect, and (2) both intra and international trade to be pro-environment unless substitution effects are sufficiently strong. Using data on intra and international trade for the US and Canada, along with several environmental outcomes, we find robust evidence that international trade has a statistically and economically beneficial causal effect on environmental quality, while intranational trade has a harmful impact. This pattern is consistent with a moderate-sized substitution effect along with a stronger decoupling effect of international trade.

Suggested Citation

  • McAusland, Carol & Millimet, Daniel L., 2013. "Do national borders matter? Intranational trade, international trade, and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 411-437.
  • Handle: RePEc:eee:jeeman:v:65:y:2013:i:3:p:411-437
    DOI: 10.1016/j.jeem.2012.10.001
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    1. repec:oup:renvpo:v:11:y:2017:i:2:p:183-206. is not listed on IDEAS
    2. Per G. Fredriksson & Xenia Matschke, 2016. "Trade Liberalization and Environmental Taxation in Federal Systems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 150-167, January.
    3. Udo Kreickemeier & Philipp M. Richter, 2014. "Trade and the Environment: The Role of Firm Heterogeneity," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 209-225, May.
    4. Bogmans, Christian, 2015. "Can the terms of trade externality outweigh free-riding? The role of vertical linkages," Journal of International Economics, Elsevier, vol. 95(1), pages 115-128.
    5. Millimet, Daniel L., 2013. "Environmental Federalism: A Survey of the Empirical Literature," IZA Discussion Papers 7831, Institute for the Study of Labor (IZA).
    6. Sakamoto, Tomoyuki & Managi, Shunsuke, 2017. "New evidence of environmental efficiency on the export performance," Applied Energy, Elsevier, vol. 185(P1), pages 615-626.
    7. Roy, Jayjit & Yasar, Mahmut, 2015. "Energy efficiency and exporting: Evidence from firm-level data," Energy Economics, Elsevier, vol. 52(PA), pages 127-135.
    8. Battisti, Michele & Delgado, Michael S. & Parmeter, Christopher F., 2015. "Evolution of the global distribution of carbon dioxide: A finite mixture analysis," Resource and Energy Economics, Elsevier, vol. 42(C), pages 31-52.
    9. Shreekar Pradhan & J. Scott Holladay & Mohammed Mohsin & Shreekar Pradhan, 2015. "Environmental Policy Instruments and Uncertainties Under Free Trade and Capital Mobility," EcoMod2015 8102, EcoMod.
    10. Michael Benarroch & James Gaisford, 2014. "Intra-industry Trade Liberalization and the Environment," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 886-904, November.
    11. 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.
    12. Roy, Jayjit, 2017. "On the environmental consequences of intra-industry trade," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 50-67.
    13. Matthew A. COLE & Robert R.J. ELLIOTT & OKUBO Toshihiro & Liyun ZHANG, 2017. "The Pollution Outsourcing Hypothesis: An empirical test for Japan," Discussion papers 17096, Research Institute of Economy, Trade and Industry (RIETI).

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    Keywords

    Bilateral trade; Pollution;

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