Trade Costs, CO₂, and the Environment

Abstract

T his paper builds a theoretical and empirical framework that can quantify the environmental costs of international trade due to CO 2 and analyze the welfare consequences of counterfactual policies that would regulate the CO 2 emissions from shipping. To this end, the paper describes a model of trade and the environment, compiles new data on CO 2 emissions from international and intranational shipping, and estimates the model's key parameters via panel data regressions. The model and data are used to examine two types of counterfactuals.The first counterfactual asks: how would welfare change if all international trade ceased? Autarky for all countries is (hopefully) not a realistic policy, but it provides a benchmark for studying real policies. This study finds that international trade increases CO 2 emissions by 5 percent. Several influential papers ask whether international trade is good for the environment (Copeland and Taylor 1994;Antweiler, Copeland, and Taylor 2001;Copeland and Taylor 2003;and Frankel and Rose 2005). I find that the global gains from international trade, equal to $5.5 trillion annually, exceed the costs of international trade due to CO 2 emissions by a factor of 161.Second, this paper assesses the welfare consequences of several proposed regulations on the carbon emissions from shipping. I analyze only goods transportation, though the European Union has sought to regulate both passenger and

Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade

“…Following Shapiro (2016), data on z ji, t τ are available from the publicly available import data for two importers i , Australia and the United States, in all years t from 1990 to 2010. 40 To avoid the possibility of zero trade flows, we focus on the 36 largest exporters to Australia and the United States, and aggregate all other countries up to a single Rest of World unit.…”

Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade

“…Theoretical, macro-trade models have provided considerable insight but have generally resisted estimation. Our methodology builds on tools from a recent trade literature sometimes described as "structural gravity" (Costinot and Rodriguez-Clare, 2014), though the application to environmental questions has been limited (Shapiro, 2016;Cherniwchan, Copeland, and Taylor, 2017). A nascent literature explores the environmental implications of models of heterogeneous firms (Bajona, Missios, and Pierce, 2012;Andersen, 2016), though does not analyze the models quantitatively.…”

Product-Level Trade Elasticities

“…At the level of detail considered here (HS6 products), the penetration ratio is not observable as we have no expenditure information in the importing country. This precludes any instrumentation based on this common theoretical argument, and we resort to lagged variables as in Shapiro (2016), who estimates trade elasticities for 13 sectors using shipping costs (and not trade policy). Figure A7 compares our baseline PPML trade-elasticity estimates to those using three-year lagged tari information.…”