Climate policy boosts trade competitiveness: Evidence from timber trade networks

Abstract

Climate policy affects the economy. Economists typically consider the economic costs associated with climate policy, but not all economic consequences of climate policy are necessarily negative. This paper considers the impact of the Kyoto Protocol on the international trade network for timber products and the competition graph derived therefrom. Implementing an instrumental variables difference-in-differences approach which uses a panel of centrality and clustering measures describing the relative importance of individual nations in the international trade network for timber products, this paper finds that nations that set a binding emissions target under the Kyoto Protocol saw the centrality of their position within this network decrease. Since the nations which set binding emissions targets were also the wealthiest nations, an additional consequence is that less wealthy economies became relative more important members of this international trade network. This is likely due to nations with a binding emissions target placing an increased importance on forested land for carbon sequestration. These results are extended to the competition graph of the international trade network for timber products where it is found that nations with binding emissions targets became marginally less important. However, increased clustering among nations with binding emissions targets in the competition graph occurred as a consequence of the Kyoto Protocol. Collectively, these results indicate that the competitive playing field was leveled in the international timber trade network while helping make progress towards multiple economically and environmentally oriented United Nations Sustainable Development Goals.