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Trade Liberalization, Transboundary Pollution, and Market Size
Stockholm University, Faculty of Social Sciences, Department of Economics. Centre for Economic Policy Research (CEPR), UK.
Number of Authors: 3
2017 (English)In: Journal of the Association of Environmental and Resource Economists, ISSN 2333-5955, E-ISSN 2333-5963, Vol. 4, no 3, 927-957 p.Article in journal (Refereed) Published
Abstract [en]

This paper uses a monopolistic competitive framework to study the impact of trade liberalization on local and global emissions. We focus on the interplay of asymmetric emission taxes and the home market effect and show how a large-market advantage can counterbalance a high emission tax, so that trade liberalization leads firms to move to the large high-tax economy. Global emissions decrease when trade is liberalized in this case. We then simulate the model with endogenous taxes. The larger country, which has the advantage of the home market effect, will be able to set a higher Nash emission tax than its smaller trade partner yet still maintain its manufacturing base. As a result, a pollution haven will typically not arise in this case as trade is liberalized. However, global emissions increase as a result of international tax competition, which underscores the importance of international cooperation as trade becomes freer.

Place, publisher, year, edition, pages
2017. Vol. 4, no 3, 927-957 p.
Keyword [en]
Abatement, Emissions, Home market effect, International trade, Pollution haven
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-145836DOI: 10.1086/693562ISI: 000406534800009OAI: oai:DiVA.org:su-145836DiVA: diva2:1135897
Available from: 2017-08-24 Created: 2017-08-24 Last updated: 2017-08-24Bibliographically approved

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