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Subglobal Carbon Policy and the Competitive Selection of Heterogeneous Firms

  • Edward J. Balistreri


    (Division of Economics and Business, Colorado School of Mines)

  • Thomas F. Rutherford


    (University of Wisconsin)

We analyze subglobal action to mitigate climate change with a consideration of recent advances in the theory of international trade. Subglobal action impacts emissions in unconstrained countries (carbon leakage) through international trade channels. Consequently, estimates of the efficacy of subglobal action, tariffs on embodied carbon, and the distribution of policy costs will be sensitive to the assumed structure of international trade. While most climate-policy models rely on an Armington (1969) structure of international trade, recent empirical evidence supports a new theory suggested by Melitz (2003). We find significant quantitative and qualitative differences when we consider the Melitz trade structure. These differences are important as an alternative, and arguably more plausible, representation of how trade and border adjustments interact with climate policy.

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Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2012-01.

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Length: 29 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:mns:wpaper:wp201201
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  1. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  3. repec:zbw:hohpro:340 is not listed on IDEAS
  4. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  5. Edward J. Balistreri & Ayed Al-Qahtani & Carol A. Dahl, 2010. "Oil and Petroleum Product Armington Elasticities: A New-Geography-of-Trade Approach to Estimation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 167-180.
  6. Svetlana Batrakova & Ronald Davies, 2010. "Is there an environmental benefit to being an exporter? Evidence from firm level data," The Institute for International Integration Studies Discussion Paper Series iiisdp322, IIIS, revised Mar 2010.
  7. Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  8. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2013. "Embodied Carbon Tariffs," ZenTra Working Papers in Transnational Studies 25 / 2014, ZenTra - Center for Transnational Studies, revised Jan 2014.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  10. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
  11. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Department of Economics - Working Papers Series 1056, The University of Melbourne.
  12. Paula Bustos, 2009. "Trade liberalization, exports and technology upgrading: Evidence on the impact of MERCOSUR on Argentinean firms," Economics Working Papers 1173, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Balistreri, Edward J. & Markusen, James R., 2009. "Sub-national differentiation and the role of the firm in optimal international pricing," Economic Modelling, Elsevier, vol. 26(1), pages 47-62, January.
  14. Brown, Drusilla K., 1987. "Tariffs, the terms of trade, and national product differentiation," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 503-526.
  15. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2009. "Trade and Welfare: Does Industrial Organization Matter?," CER-ETH Economics working paper series 09/119, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  16. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  17. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  18. Aw, Bee Yan & Chen, Xiaomin & Roberts, Mark J., 2001. "Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing," Journal of Development Economics, Elsevier, vol. 66(1), pages 51-86, October.
  19. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  20. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
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