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Environmental Policy and Firm Selection in the Open Economy

Author

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  • Udo Kreickemeier
  • Philipp M. Richter

Abstract

In this paper, we analyse the effects of a unilateral change in an emissions tax in a model of international trade with heterogeneous firms. We find a positive effect of tighter environmental policy on average productivity in the reforming country through reallocation of labour towards exporting firms. Domestic aggregate emissions fall, due to both a scale and a technique effect, but we show that the reduction in emissions following the tax increase is smaller than in autarky. Moreover, general equilibrium effects through changes in the foreign wage rate lead to a reduction in foreign emissions and, hence, to negative emissions leakage in case of transboundary pollution.

Suggested Citation

  • Udo Kreickemeier & Philipp M. Richter, 2019. "Environmental Policy and Firm Selection in the Open Economy," Discussion Papers of DIW Berlin 1807, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1807
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.669242.de/dp1807.pdf
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    References listed on IDEAS

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    1. repec:eee:inecon:v:109:y:2017:i:c:p:195-213 is not listed on IDEAS
    2. Stefan Ambec & Mark A. Cohen & Stewart Elgie & Paul Lanoie, 2013. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 2-22, January.
    3. Rikard Forslid & Toshihiro Okubo & Mark Sanctuary, 2017. "Trade Liberalization, Transboundary Pollution, and Market Size," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(3), pages 927-957.
    4. repec:eee:eecrev:v:98:y:2017:i:c:p:373-391 is not listed on IDEAS
    5. Barrows, Geoffrey & Ollivier, Hélène, 2018. "Cleaner firms or cleaner products? How product mix shapes emission intensity from manufacturing," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 134-158.
    6. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    7. repec:eee:jeeman:v:92:y:2018:i:c:p:638-658 is not listed on IDEAS
    8. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    9. Larch, Mario & Wanner, Joschka, 2017. "Carbon tariffs: An analysis of the trade, welfare, and emission effects," Journal of International Economics, Elsevier, vol. 109(C), pages 195-213.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Trade and environment; Heterogeneous firms; Unilateral environmental policy; Emissions leakage;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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