Carbon Compensation in State Assemblies
How does trade affect environmental regulation? In face of increasing import competition, politicians have stronger incentives to weaken environmental regulation, in order to compensate for the loss of profits and employment associated with these shocks. To test for this carbon compensation hypothesis, I analyze U.S. states Assemblies and the rise in import competition from China. I find that trade shocks are associated with less pro environment votes in state Assemblies, and that this effect is moderated by the level of pollution in the districts. Nonetheless, these results are only found for Republican legislators, with Democratic legislators remaining unaffected by these trade shocks. Overall, I find that negative trade shocks have an effect on environmental regulation, but that this effect is conditional on the ideology of political parties.
https://nyu.zoom.us/j/97017747416 (pw: global)