Production Factors and Pollution Embodied in Trade: Theoretical Development

Abstract

Many studies have calculated the pollution resulting from consumption activities. A common assumption in many of these studies is that imports are produced using domestic technology. Studies of economic factors embodied in trade have shown that regional technology differences are important for modeling of international trade patterns. Therefor, it is likely that calculations of pollution embodied in international trade will require the consideration of regional technology differences. This article develops a framework based on input-output analysis (IOA) for calculating production factors and pollution embodied in trade. In its most general form, the model has significant data requirements. Consequently, many simplifications are discussed that lead to reductions in data requirements, without the introduction of large errors. The framework is applied to the case of Norway in a companion article (Peters et al., 2004).