Working Paper: NBER ID: w14565
Authors: 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.
Keywords: international trade; used durable goods; environmental consequences; NAFTA
JEL Codes: F18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| free trade (F10) | export of low-quality used goods (F14) |
| export of low-quality used goods (F14) | increased average emissions in low-income countries (F64) |
| trade prolongs the lifespan of vehicles (F10) | total greenhouse gas emissions increase (O44) |
| deregulation of used vehicle market (L51) | influx of over 25 million used cars into Mexico (F10) |
| lower vehicle retirement rates in Mexico (J26) | exacerbates lifetime carbon emissions (Q54) |
| trade affects consumption and production of durable goods (E20) | changes in emissions patterns (F64) |