The Environmental Effects of Trade and Environmental Policy Within and Across Sectors

In the first chapter of this dissertation I analyze how establishment-level choices and dynamics affect aggregate emissions outcomes. To do this I first decompose aggregate emissions into three channels: scale or country size, composition or sector market share, and aggregate technique or emissions intensity. I then extend the decomposition to show how the aggregate technique channel is driven by four establishment-level channels: entry, exit, reallocation of resources between survivors, and within-establishment adjustment of production techniques and emissions intensity. Using establishment-level emissions data and a unique empirical exercise I first show, empirically, how the relative importance of the composition and aggregate technique channels have evolved over time and that changes in aggregate emissions intensity have been the most important channel driving observed declines in aggregate emissions. I follow that up by decomposing the aggregate emissions intensity channel into the four component channels.

In the second chapter I combine within and across sector channels through which trade affects our environment by embedding heterogeneous firms and fixed costs into a two-sector representative-firm framework along with endogenous response to environmental policy. In contrast to existing literature that tends to examine these channels separately, the combined framework I develop shows how cross-sector and within-sector responses to trade and environmental policy interact to affect our environment.

Finally, in the third chapter I address the question, how does environmental policy affect aggregate emissions intensity when operating within and across firms? To do this, I develop a model with heterogeneous polluting firms to analyze how environmental regulation affects polluting industries and the environment. Firms within a particular industry differ in their productivity which influences their size and emissions intensity. The model allows me to decompose the effect of environmental regulation into two distinct channels: within firm changes in emissions intensity and techniques, and increased exit from the regulated industry. I then evaluate how changes in a unique measure of environmental policy affect environmental outcomes through these two channels in the presence of fixed costs using emissions data from U.S. manufacturing sectors from 1990 - 2007.