Monday, January 26, 2009

International Trade in Used Durable Goods: The Environmental Consequences of NAFTA"

A paper fit for any "globalisation and the environment" blog. This paper has everything as well as being written by fellow green economics blogger Matthew Kahn.

The results of this paper are exactly as I would have guessed which is always reassuring. What is more the conclusion is;

"trade is good for the environment".

Always a good result as a trade and environmental economist but one that the general public find trouble believing.

"International Trade in Used Durable Goods: The Environmental Consequences of NAFTA"

NBER Working Paper No. w14565
LUCAS W. DAVIS, University of Michigan at Ann Arbor - Department of Economics, National Bureau of Economic Research (NBER)
MATTHEW E. KAHN, University of California, Los Angeles (UCLA)

Previous studies of trade and the environment overwhelmingly focus on how trade affects where goods are produced. However, trade also affects where goods are consumed. In this paper we describe a model of trade with durable goods and non-homothetic preferences. In autarky, low-quality (used) goods are relatively inexpensive in high-income countries and free trade causes these goods to be exported to low-income countries. We then evaluate the environmental consequences of this pattern of trade using evidence from the North American Free Trade Agreement. Since trade restrictions were eliminated for used cars in 2005, over 2.5 million used cars have been exported from the United States to Mexico. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States and cleaner than the stock in Mexico, so trade leads average vehicle emissions to decrease in both countries. Total greenhouse gas emissions increase, primarily because trade gives new life to vehicles that otherwise would have been scrapped.



Anonymous said...

The environmental trade and consequences of NAFTA needs to be studied more thoroughly, through the effective rsearch, such as the one presented above by Lucas Davis of Ann Arbor's University of Michigan.

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Keith said...

Interesting post, Rob. Perhaps this is covered in the actual paper -- which I cannot read, since I do not subscribe to NBER Working Papers -- but it seems to me based on the abstract that this paper looked at the environmental impacts a bit narrowly. The impact of used car exports from the US to Mexico is much broader than impact on air emissions (GHG and "ordinary" emissions such as NOx, O3, unburnt hydrocarbons, etc.). What about fuel consumption? For example, a recent report by the consumer group El Poder del Consumidor (which is advocating car labels for fuel efficiency & GHG emissions) found that the fleet average for fuel efficiency has dropped since used cars began to be imported more heavily under NAFTA (so Mexico consumes more petrol).

Another thought: what is the waste impact of all those used cars, including the used batteries and tires that must be replaced (Mexico already has significant waste problems in both) in a country that does not have an end-of-life vehicle (ELV) regime? What about all those old mercury switches in many older vehicles?

Fluid (lubricant oil, transmission, brake) leaks tend to be more common among older cars, so I wonder about that impact in the aggregate, although I suppose that is difficult to measure in a meaningful fashion.

And that's just looking at the environment angle, setting aside possible safety considerations. Many of the older used vehicles imported do not have the safety features of newer models, and what safety features they have may no longer work properly (things like air bag sensors malfunction with age) or have been disabled by prior owners.

I would also be interested in seeing such a study go beyond the narrow bilateral focus. Exporting used cars from the US to the rest of Latin America & the Caribbean (LAC) is big business [I speak from firsthand observation during my years living in the Dominican Republic.] Many of these nations do not have the environmental safeguards in place that Mexico has (such as they are), so I strongly suspect that the overall environmental impact of the trade there is much more negative. But I would love to see a study or studies that takes a serious look at the issue and either confirms or dispels my suspicions.

Best Regards,
Keith R
The Temas Blog