Vortrag
Trade and the Environment: The Role of Firm Heterogeneity

Udo Kreickemeier, Philipp M. Richter


28th Annual Congress of the European Economic Association : EEA 2013
Göteborg, Schweden, 26.08.2013 - 30.08.2013



Abstract:
This paper derives a new effect of trade liberalisation on the quality of the environment. We show that in the presence of heterogeneous firms the aggregate volume of emissions is influenced by a reallocation effect resulting from an increase in the relative size of more productive firms. The relative importance of this reallocation effect and the scale effect well known from the literature, and consequently the overall effect of trade liberalisation on the environment, is affected by the emission-intensity at the firm level: Aggregate emissions decrease when trade is liberalised if and only if firm-specific emission intensity decreases strongly with increasing firm productivity.

Abstract

This paper derives a new effect of trade liberalisation on the quality of the environment. We show that in the presence of heterogeneous firms the aggregate volume of emissions is influenced by a reallocation effect resulting from an increase in the relative size of more productive firms. The relative importance of this reallocation effect and the scale effect well known from the literature, and consequently the overall effect of trade liberalisation on the environment, is affected by the emission-intensity at the firm level: Aggregate emissions decrease when trade is liberalised if and only if firm-specific emission intensity decreases strongly with increasing firm productivity.

Themen: Energiewirtschaft



JEL-Classification: F12;F15;F18
Keywords: Trade and environment, monopolistic competition, heterogeneous firms, environmental effects
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