Trade and the Environment: The Role of Firm Heterogeneity

Udo Kreickemeier and Philipp Richter ()

Review of International Economics, 2014, vol. 22, issue 2, 209-225

Abstract: In this paper, we derive a new effect of trade liberalization 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 is affected by the emission intensity at the firm level. Domestic emissions decrease as a result of a unilateral tariff reduction if and only if firm-specific emission intensity decreases strongly with increasing firm productivity. As a result of the induced change in foreign emissions, domestic pollution can increase even if domestic emissions decrease.

Date: 2014
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Related works:
Working Paper: Trade and the Environment: The Role of Firm Heterogeneity (2012)
Working Paper: Trade and the Environment: The Role of Firm Heterogeneity (2012)
Working Paper: Trade and the environment: The role of firm heterogeneity (2012)
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