Can Trade Integration Reduce Manufacturing Emissions? The Product Composition Channel
Abstract: We introduce within-firm productivity difference in the production of intermediate products to a Ricardian model of trade and emission. As trade cost drops, firms further specialize in intermediate products according to their productivity advantages. If firms in the city where the relative price of emission-intensive input is cheaper also have higher productivity in producing intermediate goods using the input intensively, and if there exists large within-firm productivity gap between discontinued products and retained products, then the reduction in product scope of a firm can lead to a reduction in total emission and emission intensity of the firm. As our theory applies to domestic trade, we follow the approach of Donaldson and Hornbeck (2016) to construct a market access (MA) index to measure the increase in domestic trade integration associated with the expansion of the Chinese railway network. Our two stage least-squares regressions demonstrate that an increase in market access reduces both the emission levels and intensities of sulfur dioxide, dust, chemical oxygen demand, and carbon dioxide in a large sample of Chinese manufacturing firms from 1998 to 2012. Consistent with the mechanisms outlined in our theory, firms that discontinue the production of low-productivity intermediates products experience reduction in emissions.
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Venue
Virtual via Zoom
Presenter(s)
Associate Professor Tao Yang (Beijing University)