Date of Award

Fall 2023

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

First Advisor

Loris Rubini

Second Advisor

Bruce Elmslie

Third Advisor

Ju-Chin Huang

Abstract

This research is an empirical and theoretical investigation into the effect of international trade on firms’ environmental performance. In the first chapter, I explore how exports affect energy consumption. One concern about international trade is its impact on the environment: when a firm expands its output, trade increases, and so does pollution. This concern would be mitigated if exporters use "cleaner'' technologies than non-exporters. Using Chilean data, I investigate whether exports drive firms to substitute fuel, a dirty technology, for electricity, a clean technology. While I do not find a significant difference between these uses when controlling for export status, I find strong evidence of shifts away from fuel and towards electricity when firms start to export. Exporters increase the share of electricity in total costs by 1% starting two years before entering the export market, and they continue increasing it for two years after exporting. Furthermore, via a matching exercise, I identify a causal link between export entry and the increase in electricity use: starting to export increases the cost share of electricity use by 1% relative to their non-exporter matches and reduces the share of fuel use by 2%. However, this advantage lasts for only two years, explaining the lack of significant results in the cross-section. This suggests that exporting accelerates the decision to adopt cleaner technology by two years. The second chapter of this research sheds light on an often-overlooked consequence of international trade. While the prevailing belief suggests that international trade leads to increased pollution through the expansion of polluting firms' output, recent empirical evidence indicates that firms entering the export market actually reduce their emissions. In this context, I propose a theoretical framework to explain this unintended outcome: when firms begin exporting, they seize the opportunity to upgrade their machinery, which tends to be more environmentally friendly. This implies that international trade has a lower environmental impact than previously assumed. To further examine this idea, I develop a theoretical model and calibrate it to quantify the overall effects of international trade on pollution. The key mechanism underlying this phenomenon is as follows: the reduction in trade costs, such as a decline in tariffs, creates incentives for firms to adopt new technologies through two main channels. Firstly, it lowers the opportunity cost of technology adoption by reducing the associated costs and risks. Secondly, it increases the benefits derived from engaging in international trade, motivating firms to invest in upgrading their machinery and production processes. Consequently, when firms enter the export market, they often choose to upgrade their machines, resulting in the adoption of newer and cleaner technologies. As a result of this process, new exporters unintentionally become cleaner producers compared to non-exporters. The adoption of new technologies by exporters has a positive "external'' impact on reducing pollution, as their cleaner production practices contribute to overall environmental improvement. This highlights how the dynamics of international trade can inadvertently lead to a positive outcome in terms of reducing pollution and promoting sustainable production practices. The main finding of this study is that the decline in trade costs has a significant impact on pollution and pollution intensity. Specifically, the analysis reveals that a reduction in trade costs leads to a 4.4 percent decrease in pollution levels and a 0.85 percent decrease in pollution intensity. It is important to note that despite the initial increase in pollution due to firms expanding their output as a result of reduced trade costs, the extensive margin of new technologies adaptation plays a crucial role in mitigating the negative environmental impact. This adoption of cleaner technologies by firms entering the export market leads to a positive externality, resulting in a reduction in pollution and pollution intensity. In other words, while trade liberalization initially contributes to an increase in pollution through increased output, the subsequent adoption of cleaner technologies by firms entering the export market offsets and ultimately reduces pollution levels. This finding underscores the importance of considering the extensive margin of technology adoption as a key factor in understanding the overall environmental consequences of trade liberalization. The results obtained in the first chapter further support the positive effect of trade on the environmental performance of firms. To extend the analysis, the same question was explored using data from Colombian manufacturing firms. By examining the Colombian context, the focus was on whether the act of exporting prompts firms to shift from fuel, which is considered a dirty technology, to electricity, which is relatively cleaner. The findings from the study indicated that exporting firms in Colombia exhibited higher levels of fuel consumption and lower levels of electricity consumption compared to non-exporting firms. However, no clear evidence of an immediate exporting effect was observed among newly exporting firms. Instead, heterogeneity was observed among firms with different levels of electricity and fuel consumption, suggesting that individual firm characteristics and circumstances play a role in determining the impact of exporting on energy usage.

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