International Trade, CO2 Emissions and Heterogeneous Firms

26 Pages Posted: 29 Sep 2011

See all articles by Rikard Forslid

Rikard Forslid

Stockholm University; Centre for Economic Policy Research (CEPR)

Toshihiro Okubo

University of Geneva - Graduate Institute of International Studies (HEI)

Karen Helene Ulltveit-Moe

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

Date Written: September 2011

Abstract

This paper develops a model of trade with heterogenous firms, where firms invest in abatement technology and thereby have an impact on their level of emissions. The model shows how firm productivity and firm exports are both positively related to investments in abatement technology. 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 fixed investments in abatement technology and, in turn, lower emissions per output. In contrast to the standard models of heterogeneous firms, firms' productivity, and thus export performance, is not exogenous, but endogeneously determined by firms' investment in abatement technology. We derive closed form solutions for firm-level abatement investments and emissions per output, and test the empirical implications of the model using detailed Swedish firm-level data. The empirical results strongly support the model.

Keywords: CO2-emissions, heterogeneous firms, international trade

JEL Classification: D21, F12, F15

Suggested Citation

Forslid, Rikard and Okubo, Toshihiro and Ulltveit-Moe, Karen Helene, International Trade, CO2 Emissions and Heterogeneous Firms (September 2011). CEPR Discussion Paper No. DP8583, Available at SSRN: https://ssrn.com/abstract=1935259

Rikard Forslid (Contact Author)

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

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5900 (Phone)

Karen Helene Ulltveit-Moe

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
608
PlumX Metrics