Decomposing the Environmental Effects of Trade Liberalization: The Case of Consumption-Generated Pollution
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Abstract This paper investigates the effect of international trade on consumption-generated
(“tailpipe”) pollution. For countries exporting the dirty good, trade liberalization increases
its price, thus increasing domestic production and decreasing domestic consumption of dirty
goods at the same time. This forces pollution from production and consumption to move in
opposite directions, leading us to expect that trade-induced composition effects work differently
for tailpipe and smokestack pollution. Our theoretical model predicts that capital
abundance reinforces the pollution policy effect for tailpipe pollution, counter to the case
with smokestack pollution. Empirical support for this comes from our analysis of an international
panel of data on carbon monoxide emissions. We find evidence in support of an
effect analogous to the pollution haven hypothesis, which has typically not been observed
in previous literature. Thus trade liberalization may affect smokestack and tailpipe pollution
differently.
This article by Bin Hu and Ross McKitrick states that the production of goods and the consumption of "dirty goods" pollute the environment in different ways relating to the method of usage or production. "Dirty goods" are goods that produce negative externalities in the form of pollution, these goods are commonly produced by capital-intensive economies where more stringent regulations force their taxation. Due to the taxation in more developed, capital-intensive nations, the consumption of dirty goods is lowered while the amount exported increases due to the higher prices available in foreign markets. They also deduced that free trade is beneficial in reducing pollution through free trade and exploiting economies of scale in production. However, they also discovered that increasing incomes lead to increasing levels of environmental pollution in such a manner that the reduction in pollution from exploiting economies of scale is more than offset by the income-produced pollution.
These concepts are in direct relation to the topics that we covered in our last unit on environmental protection. The use of the Kunets Curve allowed Hu and McKitrick to determine that most countries fell into the range in which increasing income still causes increasing pollution, whereas Norway fell on the opposite side of the spectrum, in which increasing income actually decrease the level of pollution per person. In conclusion, Hu and KcKitrick's study shows that capital-intensive countries typically produce and export pollution-causing goods while enjoying lower levels of pollution in their home nations due to pollution taxes and more extensive regulations.
These concepts are in direct relation to the topics that we covered in our last unit on environmental protection. The use of the Kunets Curve allowed Hu and McKitrick to determine that most countries fell into the range in which increasing income still causes increasing pollution, whereas Norway fell on the opposite side of the spectrum, in which increasing income actually decrease the level of pollution per person. In conclusion, Hu and KcKitrick's study shows that capital-intensive countries typically produce and export pollution-causing goods while enjoying lower levels of pollution in their home nations due to pollution taxes and more extensive regulations.
Because companies respond to pollution taxes and extensive regulations on pollution by producing goods which produce lower levels of pollution, I believe that countries need to also increase taxes on exported goods that produce high amounts of pollution. As Gradin said in his post, companies respond to these taxes and legislation but take advantage of the fact that these taxes are not put on goods that are being to exported to other countries and are making greater profits by not implementing pollution reducing practices. Countries could subsidize exports that are low-pollution producing products.
ReplyDeleteI agree with Erin because companies that have a lot of pollution problems and don't have any incentive to change. So the only way to do that is by increasing tariffs on exported goods that produce the most pollution to produce. Along with what Gradin said in his post, Norway is a higher income country but also has lowered their pollution due to these taxes. This is something the U.S. should adopt but should also keep in mind what Erin said about having them subsidize exports that are low-pollution products.
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