Why are Firms that Export Cleaner? International Trade and CO2 Emissions

45 Pages Posted: 24 Jun 2014

See all articles by Rikard Forslid

Rikard Forslid

Stockholm University; Centre for Economic Policy Research (CEPR)

Toshihiro Okubo

Keio University

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 24, 2014

Abstract

This paper develops a model of trade and CO2 emissions with heterogenous firms, where firms make abatement investments and thereby have an impact on their level of emissions. The model shows that investments in abatements are positively related to firm productivity and firm exports. Emission intensity is, however, negatively related to firms. productivity and exports. The basic reason for these results is that a larger production scale supports more investments in abatement and, in turn, lower emissions per output. We show that the overall effect of trade is to reduce emissions. Trade weeds out some of the least productive and dirtiest firms thereby shifting production away from relatively dirty low productive local firms to more productive and cleaner exporters. The overall effect of trade is therefore to reduce emissions. We test empirical implications of the model using unique Swedish firm-level data. The empirical results support our model.

Keywords: heterogeneous firms, CO2-emissions, international trade

JEL Classification: F120, F140, F180, Q560

Suggested Citation

Forslid, Rikard and Okubo, Toshihiro and Ulltveit-Moe, Karen Helene, Why are Firms that Export Cleaner? International Trade and CO2 Emissions (May 24, 2014). CESifo Working Paper Series No. 4817. Available at SSRN: https://ssrn.com/abstract=2458293

Rikard Forslid

Stockholm University ( email )

Universitetsvägen 10 A
House A, floor 4 and 7
Frescati, Stockholm
Sweden
+46 8 16 3096 (Phone)
+46 8 15 9482 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Toshihiro Okubo

Keio University ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

Karen Helene Ulltveit-Moe (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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