Industrial Policy and Global Public Goods Provision: Rethinking the Environmental Trade Agreement
Countries around the world increase the downstream cost of low carbon technologies using anti-dumping duties and local content requirements, while simultaneously blaming inadequate efforts to address climate change on the economic cost of doing so. This paper presents a 2-country, 2-period strategic model of trade in a clean technology in the presence of differential country-level production costs and imperfect competition. If the difference in production cost is large enough and learning-by-doing allows the laggard country to catch up, then in the absence of production subsidies remaining in autarky during Stage 1 of the game can be welfare-improving for both countries. This result is strengthened when both countries use consumer subsidies. When countries choose their policy mixes, the Nash Equilibrium involves both trade and production subsidies on the part of the laggard country. The analysis suggests that an environmental trade agreement is most likely to be beneficial if production subsidies for clean technology are explicitly permitted.
Date: 8 March 2023, 17:00 (Wednesday, 8th week, Hilary 2023)
Venue: Nuffield College, New Road OX1 1NF
Venue Details: Staircase L Conference Room
Speaker: Pia Andres (Oxford Martin School / LSE)
Organising department: Department of Economics
Part of: Postdoctoral Fellows Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Emma Heritage