IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5490.html
   My bibliography  Save this paper

Costly Pollution Abatement, Competitiveness, and Plant Location Decisions

Author

Listed:
  • James R. Markusen

Abstract

The US-Mexico free-trade debate included some theoretical assertions that were then used as arguments against trade and investment liberalization. (1) Trade liberalization increases the degree to which production is internationally relocated in response to environmental restrictions (`environmental dumping'?). (2) Investment liberalization, leading to multinational firms, similarly increases the production and welfare response to costly environmental restrictions. This paper adapts an oligopoly model, in which multinationals can arise endogenously, to examine these arguments. The findings are: (1) Trade liberalization increases production sensitivity to costly environmental restrictions, but arguments against liberal trade on welfare grounds do not follow. (2) Multinationals do not increase the production-reallocation effect caused by environmental restrictions or regulations. The inter-firm reallocation of production by competitive market forces in the absence of multinationals is slightly larger than the intra-firm reallocation when multinationals are present. In addition, the paper finds that the form taken by cost increases is crucial: restrictions that fall on fixed costs (e.g., more efficient burners and motors) have much smaller effects on production and welfare than restrictions that fall on marginal costs (e.g., cleaner fuels).

Suggested Citation

  • James R. Markusen, 1996. "Costly Pollution Abatement, Competitiveness, and Plant Location Decisions," NBER Working Papers 5490, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5490
    Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5490.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, January.
    2. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    3. Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
    4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
    5. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
    6. Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 229-244, August.
    7. Rauscher, Michael, 1994. "Environmental regulation and the location of polluting industries," Kiel Working Papers 639, Kiel Institute for the World Economy (IfW).
    8. Markusen, James R. & Rutherford, Thomas F. & Hunter, Linda, 1995. "Trade liberalization in a multinational-dominated industry," Journal of International Economics, Elsevier, vol. 38(1-2), pages 95-117, February.
    9. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5490. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.