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Questions we will answer in Econ 574. Is trade liberalization good for the environment?. Do countries that trade more have dirtier environments?. Copeland and Taylor 2003, Frankel and Rose 2005, McAusland and Millimet 2011.
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Is trade liberalization good for the environment? Do countries that trade more have dirtier environments? Copeland and Taylor 2003, Frankel and Rose 2005, McAusland and Millimet 2011
Why might we even think there’s a link between trade and the environment?
Comparative Advantage • firms that produce dirty goods might choose to relocate to weak-regulation countries so as to escape stringent environmental regulations at home • Pollution Haven Hypothesis • even if firms don’t pick up and move shop, they might be hurt by import-competition from low-standard countries • Pollution Haven Effect Ederington, Levinson and Minier 2005
Environmental Kuznets Curve • Trade raises incomes, and richer people are willing to spend more for a clean environment • Environmental Kuznet’s Curve Copeland and Taylor 2003
Mis-use of Environmental Policy for Trade Policy Objectives • GATT/WTO rules prevent countries from erecting new tariffs so as to exploit their monopsony/monopoly power • Governments have incentive to adjust domestic environmental policies so as to substitute for tariffs/export taxes • Terms of trade incentives • Rent and Pollution Shifting Krutilla 1991, Broda et al 2008, Barrett 1994, Kennedy 1994
Tax Exporting, Cost-Internalization Failures and Regulatory Incidence • Opening a country up to trade changes how regulatory costs are distributed across consumers and producers • welfare of foreign capital owners ignored • welfare of foreign consumers ignored • changes the political economy of environmental regulation Oates and Schwab 1998, Markusen Morey and Olewiler 1995, McAusland 2008, McAusland & Millimet 2010
Are these predictions borne out in the data? • Causality (Frankel and Rose 2005) • Footloose firms (Ederington, Levinson and Minier 2005) • New vs old theories (Cole and Elliot 2003, Pasurka 2008, Kellenberg 2009) • Intermediate goods and offshoring (Levinson 2010)
Labour Mobility • Is a global government necessary if people are mobile? (Hoel and Shapiro 2003,2004) • Do environmental conditions induce migration? (Marchiori, Maystadt and Schumacher 2011)
Transport • What are the direct environmental consequences of trade? (Cristea, Hummels, Puzzello and Avetisyan 2011) • What are the impacts of airport emissions on urban air quality and health? (Schlenker and Walker 2011) • Hitchhikers (Costello & McAusland 2003, Costello et al 2006)
Carbon Policy • Why are MEAs so hard to come by? • Suppose we impose • a fuel tax • Domestic fuel consumption will fall • But what about global consumption? • Leakage • a cap & trade system? • Domestic producers emit less • but what about foreign producers who export to us? • Leakage • Policy solution? • Border-Tax Adjustments Barrett 1994, Sawyer and Fischer 2010, Frankel 2008, Golombek and Hoel 2004
Survival of the fittest---and the greenest? • Import competition crowds out some domestic producers • are these cost-inefficient firms relatively clean or relatively dirty? Holladay 2010
Trade and Resource Conservation • Does trade help or hurt conservation incentives and efforts? (Fischer 2010) • Are global fisheries doomed? (Costello, Gaines and Lynham 2008)
Start with the big question first: do countries that trade more have cleaner or dirtier environments?
Copeland and Taylor (2003) • Build a general equilibrium model • two sectors: a clean sector and a dirty sector • endogenous environmental policy • Answer following questions theoretically • what does trade liberalization do to environment? • what does (factor) growth do to environment? • Assess empirically whether countries that trade more intensely have lower pollution concentrations • measure trade’s impacts via three channels • scale (+) • composition (?) • technique (-)
