“Trade and Environmental Policy with Local & Transnational Pollution”

Feng Jiang, Concordia University

This paper discusses the different impacts of local and transnational pollution on countries and .rms. Firms which compete in the international market maximize their profits and seek the least environmental taxes. Governments make environmental policies to tax domestic firms by taking into account both domestic firms’ profits and social environmental damage. The paper discovers that firms with different production costs have different preferences on local and transnational pollution, because the nature of pollution (local or transnational) significantly affects governmental environmental policies. Preliminary results demonstrate that firm with lower production cost prefers local pollution to transnational pollution by profiting less strict environmental policies. Meanwhile, firm with higher production cost has the in-verse preference since it profits lower environmental cost with transnational pollution. These results partly explain the trend of firms’ relocations in different industries.