The International Economy
Online ISSN : 1884-4367
Print ISSN : 2186-6074
ISSN-L : 1884-4367
2015 JSIE Presidential Address
Greenhouse-gas Emission Controls and International Carbon Leakage through Trade Liberalization
Jota IshikawaToshihiro Okubo
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2016 Volume 19 Pages 1-22


Using the footloose capital model with two countries, this paper studies different impacts of emission taxes and quotas on firm location and global emissions under trade liberalization. If only one country (North) sets a target of emissions, firms may have incentive to relocate to the other country (South). That is, the pollution haven effect could arise. We show that a further decrease in trade costs, given an emission regulation in North, increases firm relocation and global emissions only if trade costs are relatively low. Moreover, compared with emission taxes, emission quotas moderate firm relocation, which results in less pollution haven and hence less global emissions.
JEL:F18, Q54

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© 2016 The Japan Society of International Economics
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