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Working Paper No. 08-07

Are Exporters Mother Nature's Best Friends?
Scott Holladay
October 2008


This paper empirically analyzes the relationship between international trade and plant level pollution emissions for U.S. manufacturers. I develop a theoretical framework to study emissions in a heterogenous firm international trade model. The results suggest that exporters should pollute less per unit of output than non-exporters in the same industry. Industries that face import competition should have fewer plants that generate high levels of emissions per unit of output. Their average emissions per output level should also be lower than other industries that are sheltered from international competition. These implications are tested against a unique dataset built by combining plant level emissions data from the EPA and plant characteristic data from the National Establishment Time Series. The data set consists of 15,000 plants observed over 12 years and includes 8-digit SIC industry definitions. The empirical results confirm that exporters pollute around 8% less per unit of output than non-exporters. These results are consistent with a nearest-neighbor matching procedure used to address potential unobserved variable bias. I use this framework to examine the channels through which productivity impacts emissions. Industries that face import competition pollute 0.75% less than more sheltered industries. This difference is due to the exit of small firms with high levels of emissions per output. I find no evidence that this effect is related to polluting plants relocating in search of lower levels of environmental regulation.

JEL classification: F1, Q5
Keywords: Trade and environment, Firm heterogeneity, Plant-level emissions