Trade and Environmental Policy: An Analysis of the Technology EffectEPA Grant Number: U915183
Title: Trade and Environmental Policy: An Analysis of the Technology Effect
Investigators: Reppelin, Valerie
Institution: George Washington University
EPA Project Officer: Lee, Sonja
Project Period: October 1, 1997 through October 1, 2000
Project Amount: $102,000
RFA: STAR Graduate Fellowships (1997) RFA Text | Recipients Lists
Research Category: Academic Fellowships , Economics and Decision Sciences , Fellowship - Economics
The objective of this research project is to study the relationship between free trade and environmental quality by focusing on the technology effect; namely, the relationship between trade openness and the adoption/diffusion of clean technologies. Specifically, I want to test the hypothesis that clean technologies are adopted/diffused faster in countries that have more open trade policy regimes.
The research will consist of two parts. The first part is theoretical. I will attempt to capture the technology effect by developing a simple two-country, three-goods trade model in the presence of an environmental externality. Instead of focusing on the standard Heckscher-Olin framework, I will follow a different approach (Mussa, 1974), which assumes that, in the short run, capital goods are sector specific. Over a longtime horizon, capital flows across sectors in response to rental differences, tending eventually (unless another disturbance intervenes) to a new long-run equilibrium with all capital goods earning the same rentals. I will expand on this analysis by allowing for capital movements across countries as well as across industries. I will use this approach to demonstrate the process of adjustment towards long-run equilibrium following changes in environmental policy. In doing so, I hope to stress the central role of the assumption of capital mobility or technology shifts in the analysis of trade and environmental issues. The second part of the research is an empirical exercise, which attempts to verify the existence of the technology effect by examining the relationship between trade policy regime or openness and the speed of clean technology diffusion in the steel industry. The purpose of the exercise is to compare the speed of diffusion of a cleaner steel innovation, the electric arc furnace (EAF), in several steel-producing countries. A partial adjustment stock model is used to examine the diffusion of EAF technology. Specifically, the hypothesis that the EAF technology is diffused faster in countries that have more open trade regimes is tested using panel-data covering 1970-1994 and involving 30 countries.