Foreign Demand, Developing Country Exports, and CO2 Emissions: Firm-Level Evidence from India

Geoffrey Barrows () and Hélène Ollivier
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Geoffrey Barrows: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique - IP Paris - Institut Polytechnique de Paris

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Abstract: With asymmetric climate policies, regulation in one country can be undercut by missions growth in another. Previous research finds evidence that regulation erodes the competitiveness of domestic firms and leads to higher imports, but increased imports need not imply increased emissions if domestic sales are jointly determined with export sales or if emission intensity of manufacturing adjusts endogenously to foreign demand. In this paper, we estimate for the first time how production and emissions of manufacturing firms in one country respond to foreign demand shocks in trading partner markets. Using a panel of large Indian manufacturers and an instrumental variable strategy, we find that foreign demand growth leads to higher exports, domestic sales, production, and CO2 emissions, and slightly lower emission intensity. The results imply that a representative exporter facing the average observed foreign demand growth over the period 1995-2011 would have increased CO2 emissions by 1.39% annually as a result of foreign demand growth, which translates into 6.69% total increase in CO2 emissions from Indian manufacturing over the period. Breaking down emission intensity reduction into component channels, we find some evidence of product-mix effects, but fail to reject the null of no change in technology. Back of the envelope calculations indicate that environmental regulation that doubles energy prices world-wide (except in India) would only increase CO2 emissions from India by 1.5%. Thus, while leakage fears are legitimate, the magnitude appears fairly small in the context of India.

Keywords: Globalization; Trade and environment; Product mix; Technological change (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01945848v2
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Related works:
Journal Article: Foreign demand, developing country exports, and CO2 emissions: Firm-level evidence from India (2021)
Working Paper: Foreign Demand, Developing Country Exports, and CO2 Emissions: Firm-Level Evidence from India (2021)
Working Paper: Foreign Demand, Developing Country Exports, and CO2 Emissions: Firm-Level Evidence from India (2021)
Working Paper: Foreign Demand, Developing Country Exports, and CO2 Emissions: Firm-Level Evidence from India (2020)
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