Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity

Abstract

We contribute to the debate on the impact of unilateral climate policy with a two-country two-…rm international oligopoly model accounting for endogenous plant location and heterogeneity in both country size and …rm's emissions technology. Our results suggest that, if the carbon price di¤erential is moderate as compared to unit transport costs and the relative size of the highly regulated country is big enough, a no relocation equilibrium may prevail also in the long run. A large market asymmetry coupled with a small technology gap emerges as the only con…guration in which unilateral climate policy leads to a fall in world emissions irrespective of the optimal location choice. Thus for being e¤ective and not leading to production relocation, unilateral climate policy should be moderate, implemented by a su¢ ciently large area and complemented by mechanisms for promoting the international transfer of clean technologies. Welfare implications are also discussed.

Relative Tax in a Vertically Differentiated Market: The Key Role of Consumers in Environment

“…Indeed, according to Eurostat data, the organic sector, both in terms of cultivated area and number of organic products, has been rapidly expanding during the past years. 41 In line with the literature on abatement effort, we next provide some insights on an alternative specification of costs that are increasing and convex in quality. 43 Thus, they write as…”

“…45 As we will show, our main crucial findings are robust to this alternative specification. 41 See the report at http://ec.europa.eu/agriculture/rica/pdf/Organic 2016 web new.pdf for anindepth overview of the organic agriculture in the European Union.…”

North-South diffusion of climate-mitigation technologies: the crowding-out effect on relocation

“…First, this article contributes to the literature that studies the North-South technologies diffusion. 5 The literature highlights different channels through which technology can be transferred such as trade (Rivera-Batiz and Romer, 1991;Eaton and Kortum, 2002), knowledge spillovers (Aghion and Jaravel, 2015), foreign direct investment (Keller, 2010;Newman et al, 2015;Sanna-Randaccio et al, 2017), licensing (Kamien et al, 1992;Banerjee and Poddar, 2019), or internal transfer through multinational (Ethier and Markusen, 1996;Fosfuri et al, 2001). Moreover, the diffusion of technology is related to the strength of intellectual property rights (Yang and Maskus, 2001;Maskus and Yang, 2018).…”

Dirty Versus Clean Firms’ Relocation Under International Trade and Imperfect Competition

“…The current paper relates to the literature studying the relocation of firms into countries without environmental regulations or with less stringent regulations, such as Motta and Thisse (1994), Markusen et al (1993), Greaker (2003); Petrakis and Xepapadeas (2003) or Sanna-Randaccio et al (2017). More specifically, the paper contributes to the literature analyzing the social effects of relocation due to environmental regulation and studying the implementation of the optimal policies.…”