CO2 terms of trade and its determinants based on input–output models with technical differences

Abstract

This paper constructs a comparative analysis framework on how the input-output (IO) model with technical differences affects the calculation of the pollution terms of trade (PTT) and the tests of the pollution haven hypothesis. Specifically, the CO2 terms of trade (CTT) of the world's major economies are calculated based on five IO models, and chain additive structure decomposition analysis (SDA) is conducted to examine the roles of different factors in the changes in CTT. The economic phenomena reflected by the CTT measured by these IO models are found to be different, and a comparative analysis shows that different IO models are suitable for studying different economic problems. Suggestions are provided on the application of different IO models in the calculation of economic indicators and the study of economic issues. Policy makers need to be cautious about policy recommendations based on the results obtained from different IO models.