Discussion Paper Details

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Title: Trade, Transboundary Pollution and Market Size

Author(s): Rikard Forslid, Toshihiro Okubo and Mark Sanctuary

Publication Date: March 2013

Keyword(s): market size, trade liberalization and transboundary pollution

Programme Area(s): International Trade and Regional Economics

Abstract: This paper uses a monopolistic competitive framework with many sectors to study the impact of trade liberalization on local and global emissions. We focus on the interplay of the pollution haven effect and the home market effect and show how a large-market advantage can counterbalance a high emission tax, implying that trade liberalization leads to lower global emissions. Generally, our results suggest that relative market size, the level of trade costs, the ease of abatement, and the degree of product differentiation at the sector level are relevant variables for empirical studies on trade and pollution.

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Bibliographic Reference

Forslid, R, Okubo, T and Sanctuary, M. 2013. 'Trade, Transboundary Pollution and Market Size'. London, Centre for Economic Policy Research.