Environmental Policy and Firm Selection in the Open Economy

In this paper, we analyze the effects of a unilateral change in an emissions tax model international trade with heterogeneous firms. We find positive effect tighter environmental policy on average productivity reforming country through reallocation labor toward exporting Domestic aggregate fall, due to both scale and technique effect, but show that reduction following increase is smaller than autarky. Moreover, general equilibrium changes foreign wage rate lead and, hence, negative leakage. case transboundary pollution exerts turn feedback domestic environment.