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Import Competition and Environmental Performance: Evidence from Mexican Plant-level and Satellite Imagery Data

Author

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  • Emilio Gutierrez

    () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Kensuke Teshima

    () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

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.

Suggested Citation

  • Emilio Gutierrez & Kensuke Teshima, 2011. "Import Competition and Environmental Performance: Evidence from Mexican Plant-level and Satellite Imagery Data," Working Papers 1101, Centro de Investigacion Economica, ITAM.
  • Handle: RePEc:cie:wpaper:1101
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    File URL: http://ftp.itam.mx/pub/academico/inves/teshima/11-01.pdf
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    References listed on IDEAS

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    1. Carsten Kowalczyk & Donald R. Davis, 1998. "Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA," NBER Chapters,in: The Regionalization of the World Economy, pages 227-258 National Bureau of Economic Research, Inc.
    2. 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.
    3. Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
    4. 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.
    5. 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.
    6. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
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    Cited by:

    1. Cherniwchan, Jevan, 2017. "Trade liberalization and the environment: Evidence from NAFTA and U.S. manufacturing," Journal of International Economics, Elsevier, vol. 105(C), pages 130-149.
    2. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex.
    3. Geoffrey Barrows & Helene Ollivier, 2016. "Emission intensity and firm dynamics: reallocation, product mix, and technology in India," GRI Working Papers 245, Grantham Research Institute on Climate Change and the Environment.
    4. Montufar Helu Jiménez, Alejandro, 2013. "Reformas en la producción y distribución eléctrica y su relación con el sector manufacturero: el impacto de la sustitución de Luz y Fuerza del Centro por la Comisión Federal de Electricidad," MPRA Paper 49507, University Library of Munich, Germany.
    5. Emilio Gutierrez, 2015. "Air quality and infant mortality in Mexico: evidence from variation in pollution concentrations caused by the usage of small-scale power plants," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(4), pages 1181-1207, October.

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