Trade policy uncertainty, export destination, and firm's pollution emissions: Analysis from theoretical perspective

Abstract In recent years, global economic and trade frictions have been frequent. Trade policies of many countries have become increasingly uncertain. This may also have an impact on global ecological environment. Trade policy uncertainty (TPU) may lead firms to change export destination, thereby affecting firms' pollution emissions. However, little is known about short‐run environmental effect and long‐run effect of TPU. Using theoretical analysis, this paper incorporates firms' export destination choice into theoretical model. We find that de‐crease in TPU will directly reduce firms' emission intensity. Besides, in the long run, TPU's increase from developed country leads the firm to change export destination to developing country; thus, firm's emission intensity will increase. Altogether, we present the first theoretical explanation on relationship between export destination and environment, providing comprehensive perspective to study TPU's environmental effect.