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Trade and the Environment: The Role of Firm Heterogeneity

Author

Listed:
  • Udo Kreickemeier
  • Philipp M. Richter

Abstract

This paper derives a new effect of trade liberalisation on the quality of the environment. We show that in the presence of heterogeneous firms the aggregate volume of emissions is influenced not only by the long-established scale effect, but also by a reallocation effect resulting from an increase in the relative size of more productive firms. We show how the relative importance of these effects, and hence the overall effect of trade liberalisation on the environment, is affected by the emission-intensity at the firm level: Aggregate emissions decrease when trade is liberalised if and only if firm-specific emission intensity decreases strongly with increasing firm productivity.

Suggested Citation

  • Udo Kreickemeier & Philipp M. Richter, 2012. "Trade and the Environment: The Role of Firm Heterogeneity," CESifo Working Paper Series 3846, CESifo.
    • Handle: RePEc:ces:ceswps:_3846
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    More about this item

    Keywords

    trade and environment; monopolistic competition; heterogeneous firms; environmental effects;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • 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

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