Import Competition and Environmental Performance: Evidence from Mexican Plant-level and Satellite Imagery Data
We investigate the impact of international trade, in particular import competition, on the environment. We tackle this question from a new perspective, i.e., whether trade liberalization affects production plants' environmental performance by changing incentives of firms to undertake two types of investment: investment in the environment and in efficient energy use, and investment in technology in general. Identifying such effects empirically has been challenging. Not only is it unusual to obtain direct information on plants' environmental performance as well as plants' effort towards environmental protection; it is also difficult to find an exogenous source of variation in tariffs on goods produced by plants. We overcome these difficulties by constructing a unique combination of Mexican plant-level data and satellite imagery data, thus providing evidence of the effects of import competition on three direct measures: energy efficiency in terms of electricity use; investment at the plant level in efficient energy and the environment; and measures of pollution around plants' geographic location. We use tariff changes due to free trade agreements as shocks to import competition, which are arguably less endogenous than unilateral tariff reduction and have been shown to have no systematic correlation with initial plant-level characteristics. The key finding is that the reduction of tariffs on goods produced by Mexican plants induced them to increase efficiency in energy use, thus allowing them to reduce pollution and in turn also reduce direct investment in efficient energy and environmental protection. The results suggest that even when detailed data on environmental effort at the plant level are available, caution should be taken when trying to measure the effects of openness to trade on environmental performance, as trade is also likely to change the firms' incentive to invest in technology in general, which may indirectly be more environmentally friendly.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: Camino a Sta. Teresa 930, Mexico, D.F. 10700|
Phone: +525 628 4197
Fax: +525 628 4058
Web page: http://cie.itam.mx/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carsten Kowalczyk & Donald R. Davis, 1998.
"Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA,"
in: The Regionalization of the World Economy, pages 227-258
National Bureau of Economic Research, Inc.
- Carsten Kowalczyk & Donald Davis, 1996. "Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA," NBER Working Papers 5421, National Bureau of Economic Research, Inc.
- Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
- Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001.
"Competition, Imitation and Growth with Step-by-Step Innovation,"
12375013, Harvard University Department of Economics.
- Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 467-492.
- Lucas W. Davis & Matthew E. Kahn, 2008. "International Trade in Used Durable Goods: The Environmental Consequences of NAFTA," NBER Working Papers 14565, National Bureau of Economic Research, Inc.
- Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
- Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
When requesting a correction, please mention this item's handle: RePEc:cie:wpaper:1101. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diego Dominguez)
If references are entirely missing, you can add them using this form.