The interaction between firms and governments in climate change and international trade

Abstract

This thesis analyses interactions between firms and governments in climate change and international trade. First, a theory of international agreements on climate change is presented in which governments negotiate targets and firms bear the cost of emission reductions. It analyses the effect on negotiations of investment, on R&D for instance. The public good nature of the problem implies that investment improves the government’s bargaining position. Anticipating this effect on the Nash-bargained outcome will induce firms, surprisingly, to over-invest with respect to the second best. The second chapter explores a different area in which firms and governments interact: trade policy. This chapter analyses the incentives for trade protection in an electoral college setting by constructing a new multi jurisdictional political agency model. The introduction of a spatial factor shows how the distribution of swing voters across decisive, swing states affects trade policy incentives. The empirical analysis introduces a measure of how industries specialise geographically in swing and decisive states by augmenting a benchmark test of the "Protection for Sale" mechanism. The evidence provides support for the theory. A newly-available firm-level panel dataset for Belgium is described in the third chapter, in a bid to understand the patterns in the trade transaction data. The final chapter considers the determinants of firm exporting behaviour, in particular liquidity constraints. A heterogeneous �firms trade model shows how exporters in general, firms exporting to more destinations and to smaller markets, weighted by distance, are less likely to be credit-constrained. Finally, in the presence of liquidity constraints, the impact of exchange rates on trade flows is decomposed. These equilibrium relations hold in the Belgian data, measuring credit constraints with firm-year-level credit scores. This highlights the potential role of governments in determining, through their policies on credit constraints, the patterns of trade and hence productivity levels and overall welfare