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Trade, Technology, and the Environment: Why Have Poor Countries Regulated Sooner?

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  • Mary Lovely
  • David Popp

Abstract

Countries who adopted regulation of coal-fired power plants after 1980 generally did so at a much lower level of per-capita income than did early adopters -- poor countries regulated sooner. This phenomenon suggests that pioneering adopters of environmental regulation provide an advantage to countries adopting these regulations later, presumably through advances in technology made by these first adopters. Focusing specifically on regulation of coal-fired power plants, we ask to what extent the availability of new technology influences the adoption of new environmental regulation. We build a general equilibrium model of an open economy to identify the political-economy determinants of the decision to regulate emissions. Using a newly-created data set of SO2 and NOX regulations for coal-fired power plants and a patent-based measure of the technology frontier, we test the model's predictions using a hazard regression of the diffusion of environmental regulation across countries. Our findings support the hypothesis that international economic integration eases access to environmentally friendly technologies and leads to earlier adoption, ceteris paribus, of regulation in developing countries. By limiting firms' ability to burden shift, however, openness may raise opposition to regulation. Our results suggest that domestic trade protection allows costs to be shifted to domestic consumers while large countries can shift costs to foreign consumers, raising the likelihood of adoption. Other political economy factors, such as the quality of domestic coal and election years, are also important determinants.

Suggested Citation

  • Mary Lovely & David Popp, 2008. "Trade, Technology, and the Environment: Why Have Poor Countries Regulated Sooner?," NBER Working Papers 14286, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14286
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    Cited by:

    1. Popp, David & Newell, Richard G. & Jaffe, Adam B., 2010. "Energy, the Environment, and Technological Change," Handbook of the Economics of Innovation, Elsevier.
    2. Dierk Herzer, 2017. "The Long-run Relationship Between Trade and Population Health: Evidence from Five Decades," The World Economy, Wiley Blackwell, vol. 40(2), pages 462-487, February.
    3. Nemet, Gregory F., 2012. "Inter-technology knowledge spillovers for energy technologies," Energy Economics, Elsevier, vol. 34(5), pages 1259-1270.
    4. René Kemp & Luc Soete & Rifka Weehuizen, 2012. "Towards an Effective Eco-Innovation Policy in a Globalised Setting," Chapters,in: A Handbook of Globalisation and Environmental Policy, Second Edition, chapter 7 Edward Elgar Publishing.

    More about this item

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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