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Environmental policy and firm selection in the open economy

Author

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  • Kreickemeier, Udo
  • Richter, Philipp M.
Abstract
In this paper, we analyse the effects of a unilateral change in an emissions tax in a model of international trade with heterogeneous firms. We find a positive effect of tighter environmental policy on average productivity in the reforming country through reallocation of labour towards exporting firms. Domestic aggregate emissions fall, due to both a scale and a technique effect, but we show that the reduction in emissions following the tax increase is smaller than in autarky. Moreover, general equilibrium effects through changes in the foreign wage rate lead to a reduction in foreign emissions and, hence, to negative emissions leakage in case of transboundary pollution.

Suggested Citation

  • Kreickemeier, Udo & Richter, Philipp M., 2019. "Environmental policy and firm selection in the open economy," University of Göttingen Working Papers in Economics 373, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:373
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2024. "Regulatory Stringency and Emission Leakage Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1407-1424, June.
    3. Liming Hong & Wei Huang & Sajid Anwar & Xiaofeng Lv, 2023. "North–South asymmetry, unilateral environmental policy and carbon tariffs," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 241-266, May.
    4. Kohl, Miriam & Richter, Philipp M., 2023. "Unilateral tax policy in the open economy," Journal of International Economics, Elsevier, vol. 145(C).
    5. Tao Song, 2024. "Pollution reduction by rationalization hypothesis and water pollution in China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    6. Robin Sogalla & Joschka Wanner & Yuta Watabe, 2024. "New Trade Models, Same Old Emissions?," Discussion Papers of DIW Berlin 2077, DIW Berlin, German Institute for Economic Research.
    7. Naumann, Fabrice & Bolz, Simon Johannes & Richter, Philipp Moritz, 2022. "Offshoring and Environmental Policy: Firm Selection and Distributional Effects," VfS Annual Conference 2022 (Basel): Big Data in Economics 264086, Verein für Socialpolitik / German Economic Association.
    8. Sogalla, Robin & Wanner, Joschka & Watabe, Yuta, 2024. "New trade models, same old emissions?," Kiel Working Papers 2267, Kiel Institute for the World Economy (IfW Kiel).
    9. Yangjie Liao & Xiaokun Zhou, 2024. "Real green or fake green? Impact of green credit policy on corporate ESG performance," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-13, December.
    10. Finkelstein Shapiro, Alan & Metcalf, Gilbert E., 2023. "The macroeconomic effects of a carbon tax to meet the U.S. Paris agreement target: The role of firm creation and technology adoption," Journal of Public Economics, Elsevier, vol. 218(C).
    11. Nikos Tsakiris & Nikolaos Vlassis, 2024. "Border Carbon Adjustments and Leakage in the Presence of Public Pollution Abatement Activities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2231-2258, September.
    12. Watabe,Yuta & Sogalla,Robin & Wanner,Joschka, 2024. "New Trade Models, Same Old Emissions?," IDE Discussion Papers 926, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    13. Hamaguchi, Yoshihiro, 2023. "Environmental tax evasion as a determinant of the Porter and pollution haven hypotheses in a corrupt political system," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 610-633.

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    More about this item

    Keywords

    Trade and environment; Heterogeneous firms; Unilateral environmental policy; Emissions leakage;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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