Carbon Policy and the Structure of Global Trade

36 Pages Posted: 23 Oct 2015

See all articles by Edward J. Balistreri

Edward J. Balistreri

Iowa State University

Christoph Boehringer

University of Oldenburg

Thomas Rutherford

University of Wisconsin - Madison

Multiple version iconThere are 2 versions of this paper

Date Written: October 23, 2015


Alternative perspectives on the structure of international trade have important implications for the evaluation of climate policy. In this paper we assess climate policy in the context of three important alternative trade formulations. First is a Heckscher‐Ohlin model based on trade in homogeneous products, which establishes the traditional neoclassical view on comparative advantage. Second is an Armington model based on regionally differentiated goods, which constitutes a popular specification for numerical simulations of trade policy. Third is a Melitz model based on monopolistic‐competition and firm heterogeneity. This heterogeneous‐firms framework is adopted in many contemporary theoretic and empirical investigations in international trade. As we show in this paper, the three alternative trade formulations have important implications for the assessment of climate policy with respect to competitive effects for energy‐intensive production (and hence carbon leakage) as well as the transmission of policy burdens across countries.

Keywords: Heterogeneous firms, carbon leakage, competitiveness

JEL Classification: F12, F18, Q54, Q56

Suggested Citation

Balistreri, Edward J. and Böhringer, Christoph and Rutherford, Thomas, Carbon Policy and the Structure of Global Trade (October 23, 2015). ZenTra Working Paper in Transnational Studies No. 57 / 2015, Available at SSRN:

Edward J. Balistreri (Contact Author)

Iowa State University ( email )

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Christoph Böhringer

University of Oldenburg ( email )

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Oldenburg, D-26111

Thomas Rutherford

University of Wisconsin - Madison ( email )

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