Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity

Arbeitspapier

We contribute to the debate on the impact of unilateral climate policy with a two-country two-firm international oligopoly model accounting for endogenous plant location and heterogeneity in both country size and firm’s emissions technology. Our results suggest that, if the carbon price differential is moderate as compared to unit transport costs and the relative size of the highly regulated country is big enough, a no relocation equilibrium may prevail also in the long run. A large market asymmetry coupled with a small technology gap emerges as the only configuration in which unilateral climate policy leads to a fall in world emissions irrespective of the optimal location choice. Thus for being effective and not leading to production relocation, unilateral climate policy should be moderate, implemented by a sufficiently large area and complemented by mechanisms for promoting the international transfer of clean technologies. Welfare implications are also discussed.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 55.2014

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Multinational Firms; International Business ; Environmental Economics: Government Policy
• Subject: Foreign Direct Investment. Carbon leakage. Climate Policy ; Emissions Technologies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sanna-Randaccio, Francesca ; Sestini, Roberta ; Tarola, Ornella
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/101956
• Last update: 10.03.2025, 11:43 AM CET