Working Paper: CEPR ID: DP9412
Authors: Rikard Forslid; Toshihiro Okubo; Mark Sanctuary
Abstract: This paper uses a monopolistic competitive framework with many sectors to study the impact of trade liberalization on local and global emissions. We focus on the interplay of the pollution haven effect and the home market effect and show how a large-market advantage can counterbalance a high emission tax, implying that trade liberalization leads to lower global emissions. Generally, our results suggest that relative market size, the level of trade costs, the ease of abatement, and the degree of product differentiation at the sector level are relevant variables for empirical studies on trade and pollution.
Keywords: Market Size; Trade Liberalization; Transboundary Pollution
JEL Codes: F12; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | higher emissions in the larger market (F64) |
| Trade liberalization (F13) | lower emissions in the smaller market (L99) |
| higher emissions in the larger market (F64) | global emissions (F64) |
| Trade liberalization (F13) | increase in global emissions (F64) |
| asymmetric emission taxes (H23) | firms relocate to countries with lower taxes (H32) |
| lower emission taxes in larger market (H23) | global emissions will rise (Q54) |
| higher emission taxes in larger market (H23) | decrease in global emissions (F64) |