Essays in International Trade and the Environment

Abstract

This thesis is a collection of three essays on international trade and environmental economics. Chapter 1 examines the effect of trade policy on pollution. Using a novel dataset, I examine how trade liberalization following the North American Free Trade Agreement (NAFTA) affected the pollution emitted by manufacturing plants in the United States. My empirical approach exploits variation in protection across time, industries and geographic locations to isolate the causal effect of trade liberalization. I find that NAFTA led to significant reductions in the emissions of three common pollutants from affected plants. These changes are primarily due to reductions in emission intensity, as opposed to changes in the scale of plant output. My findings suggest a new channel through which trade affects the environment. Chapter 2 analyzes the relationship between international trade, economic growth and the environment. In this chapter, I argue the compositional shift from agricultural to industrial production – industrialization – is a central determinant of changes in environmental quality as economies develop. I develop a simple two-sector model of neoclassical growth and the environment in a small open economy to examine how industrialization affects the environment. The model is estimated using sulfur emissions data for 157 countries over the period 1970-2000. The results show the process of industrialization is a significant determinant of observed changes in emissions: a 1% increase in industry’s share of total output is associated with an 11.8% increase in the level of emissions per capita. Chapter 3, coauthored with Eugene Beaulieu, examines Canada’s trade policy at the end of the 19th century. Canada’s trade policy at this time is commonly viewed as protectionist and extremely costly. We employ the Anderson-Neary Trade Restrictiveness Index to reexamine this view. Based on product level customs data, we show that Canadian trade policy between 1870 and 1910 was more restrictive than previously understood, but created smaller welfare losses than previously believed. These results are primarily driven by high tariffs on inelastic, non-competing import goods. Although Canada’s tariff structure becomes more restrictive over the period, our findings indicate it was not as protectionist or as costly as once thought.