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Luis Gautier
''Pollution halos and free-entry''
( 2018, Vol. 38 No.1 )
There is an important number of countries where local content requirements and carbon pricing policies are employed to address environmental degradation and develop industry. The literature has somewhat explored the role of emission taxes and local content requirements on the reduction (increase) of emissions (foreign direct investment), but not the effects on total income. I derive conditions under which laxer local content requirements and negligible adjustments in taxation reduce (increase) total emissions (income) as long as (i) free-entry effects are large and (ii) foreign direct investment (FDI) represents a large share of income. However, adjustments in the emission tax do not necessarily yield analogous results even in the presence of large entry incentives for FDI. The analysis contributes to the literature which examines the role of environmental policy on free-entry markets.
Keywords: Pollution halos, Free-entry, FDI, Local Content, Emission Tax
JEL: Q5 - Environmental Economics: General
O2 - Development Planning and Policy: General
Manuscript Received : Jun 05 2017 Manuscript Accepted : Jan 24 2018

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