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Title:The impact of unilateral climate policy with endogenous plant location and market size asymmetry PDF Logo
Authors:Sanna-Randaccio, Francesca
Sestini, Roberta
Issue Date:2010
Series/Report no.:Nota di lavoro // Fondazione Eni Enrico Mattei: Sustainable development 2010,107
Abstract:This paper analyses the impact of unilateral climate policy on firms' international location strategies in emission-intensive sectors, when countries differ in terms of market size. The cases of partial and total relocation via foreign direct investment are separately considered. A simple international duopoly model highlights the differences between short-term and long-term effects. In the short-term no change in location is a likely outcome in very capital-intensive sectors, and when there is a strategy shift this takes the form of partial instead of total relocation. In the long-run total relocation becomes a feasible outcome. However we found that, when tighter mitigation measures are introduced by the larger country and unit transport cost is high, with a pronounced market asymmetry the probability of firms not relocating abroad is high even in the long-term. The welfare implications of unilateral environmental measures are assessed considering global industrial pollution and accounting for shifts in location strategy.
Subjects:Foreign Direct Investment
Carbon Leakage
Climate Policy
Relocation
Transport Costs
Welfare
JEL:F12
F23
Q58
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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