DECIG Seminar: March 2024

Institutions, Comparative Advantage, and the Environment

Presenter:

Joseph S. Shapiro (University of California, Berkeley and NBER)

Time:

Wednesday, March 20, 2024

10:00 – 11:00 AM  (ET)

ONLINE: Webex

IN-PERSON (for World Bank HQ staff): Room F-3K-E-400 

Abstract

This paper proposes that strong financial, judicial, and labor market institutions provide comparative advantage in clean industries, and thereby improve a country's environmental quality. Five complementary tests support this hypothesis. First, industries that depend on institutions are disproportionately clean. Second, strong institutions increase relative exports in clean industries, even conditional on environmental regulation and factor endowments. Third, an industry's complexity helps explain the link between institutions and clean goods. Fourth, a quantitative general equilibrium model indicates that strengthening a country's institutions decreases its pollution through relocating dirty industries abroad, though increases pollution in other countries. Fifth, cross-country differences in the composition of output between clean and dirty industries explain more of the global distribution of emissions than differences in the techniques used for production do. The comparative advantage that strong institutions provide in clean industries gives one under-explored reason why developing countries have relatively high pollution levels.

For other information, please contact ikoval1@worldbank.org