Trade liberalization, environmental regulation and self-regulation of multinational firms

Fabrice Darrigues (1) , Jean-Marc Montaud (1)

1 CATT - Centre d'Analyse Théorique et de Traitement des données économiques

Using a monopolistic competition model with mobile capital, where firms may choose between a “dirty” or a “clean” technology, this work explores the relationship between environment, trade liberalization, geographical and technical choices of multinational firms. We show that beside of environmental regulation, the ecological sensitivity of consumers can also be a market mechanism which may urge firms to self-regulate. We show in particular that a local sensitivity of environmental issues amplifies the phenomenon of Pollution Haven induced by an environmental tax, while a more comprehensive environmental awareness attenuates or cancels it gradually as the liberalization progresses.

Keywords: Globalization; Geographical Economics; Environmental Economics

Domains: Economics and Finance

Fabrice Darrigues, Jean-Marc Montaud. Trade liberalization, environmental regulation and self-regulation of multinational firms. 2011. ⟨hal-01880351⟩