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International Trade in Used Durable Goods: The Environmental Consequences of NAFTA

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  • Lucas W. Davis
  • Matthew E. Kahn

Abstract

Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:14565
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    References listed on IDEAS

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    1. Lucas W. Davis, 2008. "The Effect of Driving Restrictions on Air Quality in Mexico City," Journal of Political Economy, University of Chicago Press, vol. 116(1), pages 38-81, February.
    2. McAusland, Carol, 2008. "Trade, politics, and the environment: Tailpipe vs. smokestack," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 52-71, January.
    3. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, February.
    4. Janet Currie & Matthew Neidell, 2005. "Air Pollution and Infant Health: What Can We Learn from California's Recent Experience?," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 1003-1030.
    5. Danilo Pelletiere & Kenneth A. Reinert, 2004. "Used automobile protection and trade: Gravity and ordered probit analysis," Empirical Economics, Springer, vol. 29(4), pages 737-751, December.
    6. Kenneth Y. Chay & Michael Greenstone, 2003. "The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1121-1167.
    7. Kenneth Y. Chay & Michael Greenstone, 2005. "Does Air Quality Matter? Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 376-424, April.
    8. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    9. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, June.
    10. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    11. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
    12. Danilo Pelletiere & Kenneth A. Reinart, 2002. "The Political Economy of Used Automobile Protection in Latin America," The World Economy, Wiley Blackwell, vol. 25(7), pages 1019-1037, July.
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    Cited by:

    1. 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.
    2. Matthew A. Cole & Robert J.R. Elliott & Jing Zhang, 2011. "Growth, Foreign Direct Investment, And The Environment: Evidence From Chinese Cities," Journal of Regional Science, Wiley Blackwell, vol. 51(1), pages 121-138, February.
    3. Metcalf, Gilbert E., 2009. "Tax Policies for Low-Carbon Technologies," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 519-533, September.

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment

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