Brown Bag Seminar Industrial Economics

This paper examines how firms' CO2 emission intensity (CEI) responds to trade shocks. Changes in market conditions, such as trade shocks, are believed to drive specialization toward core products, foster innovation, improve productivity, and influence abatement choices. I develop a unified framework that decomposes within-firm changes in CEI into within- and between-product components and estimates the heterogeneous impacts of trade on Hicks-neutral productivity and abatement. Abatement is defined as a factor-augmenting productivity process that reduces CO2 emissions relative to other inputs. Using data on German manufacturing firms, I analyze the impact of increased trade flows from Eastern Europe and China to Germany between 1995 and 2008. The analysis yields two main sets of results. The first set includes descriptive statistics that provide insights into typically unobservable data, such as the allocation of CO2 emissions by product line and firm-level abatement. The second set presents non-parametric estimates of firm-specific effects of trade flow changes on product-level emission intensity, decomposing the effects into components attributable to productivity and abatement. Under a more restrictive set of assumptions, I estimate markups at product level and I find that, both within and across firms, product level markups are negatively correlated with emission intensity, while marginal costs are positively correlated. Additionally, I estimate the impact of trade on within-firm CO2 emission reductions driven by specialization in core products.