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Combining time variations, cross-province variations in policy intensity, and variations in pollution intensity across industries, we estimate the impact of environmental regulation on firm exports. We find that in more pollution-intensive industries, stricter environmental regulation reduces both the probability that a firm will export and the volume of exports. Heterogeneous tests show that the impact is smaller for SOE firms and for firms located in the central and western part of China. We also find that the reduced probability that a firm will export is driven by a decline in non-exporters entering the export market. [ABSTRACT FROM AUTHOR]

We develop a two-good general equilibrium model of a small open economy to decompose the effect of a country's unilateral strengthening of environmental policy on pollution emissions in the rest of the world, known as emissions leakage. We show analytically and numerically that the level of emissions leakage depends on the level of trade friction in the service sector. In the model, production in the manufacturing sector is associated with pollution emissions, and production in the service sector is clean. In a special case with free trade in manufacturing and no trade in services, no leakage occurs. Allowing for trade in services, we solve for the relationship between trade frictions in the service sector and leakage. At lower levels of service sector's trade friction, leakage from a small strengthening of environmental regulation decreases (increases) if services are imported (exported). Finally, we simulate the model, calibrating the to the Canadian economy to compare these effects’ relative sizes over a range of plausible parameter values. Leakage is about 18% lower when using trade friction levels estimated from the literature rather than assuming no trade friction in services. [ABSTRACT FROM AUTHOR]

We study environmental regulation and its role for trade in China. Specifically, we assess the effectiveness of an environmental policy in China that introduced stricter regulations on sulfur dioxide (SO 2 ) emissions in targeted cities. To identify the causal effect of this policy on exports, we use sectoral export data for a panel of Chinese cities and exploit variations in exports between cities and sectors, over time, and, in a second step, between firm types. We find a relative fall in sectoral exports in targeted cities after the implementation of the policy, which is sharper the more polluting the industry. Further, we find that the observed effect is mainly driven by privately owned firms, whereas exports of state-owned firms seem to be unaffected by the new policy. This finding is consistent with the preferential political treatment of state-owned firms in China. [ABSTRACT FROM AUTHOR]

We show that harmonizing emissions policy may be bad for the environment and/or global welfare, even when pollution is transboundary and countries are identical in every way. Harmonization effectively internalizes the transboundary aspects of pollution. But it also changes the politics surrounding tailpipe regulation. With harmonization, producers can no longer avoid strict local regulation by simply exporting their products to overseas markets with weak standards for consumer goods. As a result, harmonization may raise political opposition to regulation. To examine these competing effects we develop a generic treatment of the politics of environmental regulation, a treatment we show to be isomorphic to three popular models of political economy: majority rules, a political elite and a political contributions approach. We find that harmonization both weakens environmental regulation and reduces global welfare when the level of political capture by dirty industry is high relative to the rate of pollution transmission across borders. [ABSTRACT FROM AUTHOR]