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This paper develops a theoretical model of trade and environmental emissions with heterogeneous rms, where rms make abatement investments and thereby aect their level of emissions. We show that investments in abatement are positively related to rm productivity and rm exports, while emission intensity is negatively related to rms' productivity and exports. The basic reason for these results is that a larger production scale supports more investments in abatement and, in turn, reduces emissions per output. We nd that trade liberalization weeds out the least productive and dirtiest rms thereby shifting production away from relatively dirty low productive local rms to more productive and cleaner exporters. The overall eect of trade is therefore to reduce emissions. We test the empirical implications of the model on emission intensity, abatement and exporting using rm-level data from Sweden. The empirical results support our model.

This paper studies the impact of an R&D cost shock on R&D investments, imported inputs, and their joint impact on firm performance. We introduce imported inputs into a model of R&D and endogenous productivity, and show that R&D and international sourcing are complementary activities. Exploiting the introduction of an R&D tax credit in Norway in 2002, we find that cheaper R&D stimulated not only R&D investments but also imports of intermediates, quantitatively consistent with the model. An implication of our work is that improved access to imported inputs promotes R&D investments and, ultimately, technological change. (JEL D92, F14, G31, H25, L25, O32, O33)

This paper develops a multi-country model of international trade that provides a simple microfoundation for buyer-seller relationships in trade. We explore a rich dataset that identifies buyers and sellers in trade and establish a set of basic facts that guide the development of the theoretical model. We use predictions of the model to examine the role of buyer heterogeneity in a market for firm-level adjustments to trade shocks, as well as to quantitatively evaluate how firms' marginal costs depend on access to suppliers in foreign markets.

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