Wednesday, January 28, 2009

NAFTA and Vehicle Pollution

Have you ever read a newspaper article and this shifted your research agenda? I must admit that this happened to me after I read this piece. I have written about "pollution havens" and the pollution content of international trade between rich and poor countries but this article, with its focus on the choices of consumers, got me thinking.

I called Lucas Davis. Lucas is a great economist and I knew that he is an expert on pollution issues in Mexico. We started to work together to build up an empirical project taking a close look at the scale and composition of used private vehicles that have been exported from the United States to Mexico under NAFTA over the calendar years 2005 to 2008. Over 2.5 million vehicles were "mailed" to Mexico. Given that Mexico's total vehicle stock was 20 million vehicles, this is a significant expansion. Today we received a nice writeup, see Salon Article Today about the Davis/Kahn paper

If you have the time and patience, here is a Free copy of the Davis/Kahn paper.

In a nutshell, here are our key findings:

1. At a point in time, used vehicle trade between the rich country (the exporting USA) and the poor country (the importing Mexico) causes average emissions in each nation to decline! Yes, the USA exports "dirty" vehicles to Mexico and these vehicles are dirtier than our average vehicle so since marginal > average, average emissions decline in the USA after we export. BUT, the vehicles that Mexico imports are CLEANER than the average vehicle on the Mexican roads so from the Mexican perspective, marginal < average --- so average emissions decline in both nations.

For you retired labor economists, this is one of the funny Roy Model cases. You remembers the joke of the student who transfers from Yale to Harvard and this lowers the average brains at each school.

2. Vehicles are durables and durables can live a long time. In the USA, 99% of vehicles are scrapped and dead at age 15. In Mexico, vehicles can live on to age 30. We argue that a perverse environmental effect of trade is that by moving a 12 year old USA vehicle to Mexico, this vehicle would have lived 3 more years in the USA but lives on another 10 years or more in Mexico and thus its total greenhouse gas emissions goes up because of endogenous life expectancy.

We recognize that Mexicans drive fewer miles than people in the USA but this doesn't offset this lifeexpectancy effect.

We also recognize that Mexican buyers of used USA vehicles are of 2 types. There are past bus takers buying their first vehicle and there are previous Mexican vehicle owners who owned a really low quality vehicle. Used vehicle trade may lower the emissions of the 2nd group as they move up the quality ladder. The "bus people" experience an increase in their emissions because buses are "green" per-capita.