Trade Policy and Clean Transitions: Vehicle Import Regulation in Ethiopia

Developed economies are electrifying their vehicle fleets, but as older gasoline vehicles are retired, millions are exported to developing countries, where import regulation is weak and environmental costs are borne by those least able to afford them. This project studies how developing economies should respond. In January 2024, Ethiopia became the first country in the world to ban gasoline vehicle imports, following an initial import restriction in 2022, generating exogenous variation in trade policy and environmental regulation. We combine administrative data and a new large-scale household survey to estimate a structural model of Ethiopia’s vehicle market. The model recovers consumer preferences, quantifies the welfare and emissions consequences of the ban, and evaluates counterfactual policies, including differentiated tariffs, vehicle age caps, and EV purchase subsidies. The findings speak directly to a broader question facing many developing economies: when high-income countries export their pollution, what is the right policy response?

“Electrification is reshaping the geography of pollution around the world. Cleaner vehicles in one country do not necessarily produce cleaner transportation globally if older gasoline vehicles are simply redirected to poorer markets. Our project studies how developing countries are responding to this challenge and which policies can best support the cleaner transition.”

Stan Xie, PhD Student, Kenneth C. Griffin Department of Economics