Essays on Trade Liberalization, Foreign Direct Investment, and the Environment

Abstract

Chapter 2 studies the effect of a trade restriction on the incentive for a trade partner to tax the emission of greenhouse gases. We consider a game theory, partial equilibrium model to examine how an import tariff affects the incentive for an exporting country's government to choose a tax on the emission of greenhouse gases. We show that an increase in the exogenous tariff for the importer induces the exporter to adopt more lenient emissions regulations. When the tariff is endogenous, an import tariff induces the exporting country to choose a lower emission tax than it would have had the importing country been unable to impose the tariff. This result suggests that import restrictions do not encourage other countries to adopt more stringent environmental regulations. Chapter 3 investigates how regional trade liberalization affects the environment by assessing the effects of regional trade agreements (RTAs) on pollutants. Toward this purpose, I constructed a dataset of 199 RTAs which includes all free trade agreements (FTAs) and Customs Unions (CUs) for goods. The dataset is unique because it includes each country’s intra-group trade volume across all RTA partners in a given year. Using the generalized method of moments, trade is treated as endogenous. Unlike the results found from broad liberalization, this study finds regional liberalization has a detrimental total direct effect as it increases sulfur dioxide concentrations, whereas it has a beneficial total direct effect in reducing carbon dioxide emissions. When considering the indirect effects due to the possible structural and volume change in Foreign Direct Investment, the indirect effects exacerbate the direct impacts. The result implies regional cooperation is effective in reducing greenhouse gases. Chapter 4 analyzes the effects of natural disasters on Foreign Direct Investment (FDI) from three different perspectives using data from 214 countries over 1985-2014. The results indicate that when disasters are measured by their total number occurring and their number of affected people, they are negatively and statistically correlated with FDI in the long term, but there is no significant correlation when disasters are measured by their total monetary damage.