Trade, Technology, and the Environment: Does Access to Technology Promote Environmental Regulation?

Focusing specifically on regulation of coal-fired power plants, we examine how technological innovation by early adopters influences the timing of new environmental regulation in non-innovating countries. We build a general equilibrium model of an open economy to identify the political-economy determinants of regulation. With a newly-created data set of SO2 and NOX regulations for coal-fired power plants and a patent-based measure of the technology frontier, we estimate the determinants of environmental regulation diffusion. Our findings support the hypothesis that international economic integration eases access to environmentally friendly technologies and leads to earlier adoption, ceteris paribus, of regulation in non-innovating countries. However, domestic trade protection allows costs of regulation to be shifted to domestic consumers, while market power due to country size allows large countries to shift costs to foreign consumers. Other political economy factors, such as the quality of domestic coal and election years, are also important determinants