Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/43502 
Year of Publication: 
2010
Series/Report no.: 
Nota di Lavoro No. 2010,107
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
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

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