Subnational trade flows and state-level energy intensity: an empirical analysis

Abstract

In one strand of research, analysts examine the trends and determinants of energy usage and intensity. In the second strand, researchers analyse the impact of trade flows on environmental outcomes. Recently, Cole (2006) bridges this gap, analysing the impact of trade intensity on energy usage utilizing panel data at the country level. In line with Cole (2006), we analyse the impact of subnational trade flows across US states on state-level energy usage and intensity, controlling for the endogeneity of trade flows. The model treating trade as endogenous confirms the cross-country result in Cole (2006); trade causes energy intensity to rise on average. However, the impact is not homogeneous across sectors as the increase in intensity is concentrated in the industrial and transportation sectors.

Keywords:

• bilateral trade
• energy intensity
• pollution haven hypothesis

JEL Classification:

• F18
• Q48

Notes

¹ Metcalf (2006) investigates the possibility that energy prices are also endogenously determined. However, he fails to reject to the exogeneity of prices. Thus, we treat prices as exogenous.

² Due to data limitations and the specification of the gravity model in Equation 2(2), we follow Combes et al. (2005) and neglect shipments between states and the rest of the world. We view this as a measurement error issue and since we utilize instrumental variable techniques, this omission should not impact the results.

³ Due to data limitations, we use the data on CM state-level capital stock in 1996 for 1997.

⁴ To conserve the space, the full sets of the coefficient estimates for Equation 1 are available upon request.