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Pollution halos and free-entry

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  • Luis Gautier

    (University of Texas at Tyler)

Abstract

There is an important number of countries where local content requirements and carbon pricing policies are employed to address environmental degradation and develop industry. The literature has somewhat explored the role of emission taxes and local content requirements on the reduction (increase) of emissions (foreign direct investment), but not the effects on total income. I derive conditions under which laxer local content requirements and negligible adjustments in taxation reduce (increase) total emissions (income) as long as (i) free-entry effects are large and (ii) foreign direct investment (FDI) represents a large share of income. However, adjustments in the emission tax do not necessarily yield analogous results even in the presence of large entry incentives for FDI. The analysis contributes to the literature which examines the role of environmental policy on free-entry markets.

Suggested Citation

  • Luis Gautier, 2018. "Pollution halos and free-entry," Economics Bulletin, AccessEcon, vol. 38(1), pages 129-135.
    • Handle: RePEc:ebl:ecbull:eb-17-00442
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    References listed on IDEAS

    as
    1. Bouwe R. Dijkstra & Anuj Joshua Mathew & Arijit Mukherjee, 2011. "Environmental Regulation: An Incentive for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 568-578, August.
    2. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    3. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
    4. Luis Gautier, 2017. "Emission Taxes and Product Differentiation in the Presence of Foreign Firms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 461-489, April.
    5. Toshihiro Matsumura & Yasunori Okumura, 2014. "Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly," Journal of Economics, Springer, vol. 113(2), pages 125-132, October.
    6. Luis Gautier, 2017. "Local content and emission taxes when the number of foreign firms is endogenous," Journal of Economics, Springer, vol. 122(3), pages 239-266, November.
    7. repec:bla:scandj:v:97:y:1995:i:3:p:411-20 is not listed on IDEAS
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    More about this item

    Keywords

    Pollution halos; Free-entry; FDI; Local Content; Emission Tax;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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