Gains from Trade and Environmental Policy under (original) (raw)
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Gains from Trade and Environmental Policy under Imperfect Competition and Pollution from Transport1
The relationship between the environment and international trade has been investigated in the framework of several international trade models that have been extended to contain the factor environmental pollution. The Ricardian trade model has been used by and the Heckscher-Ohlin model has been used in different ways by , and . Conrad (1993) applied the Cournot-Brander-Spencer model and Markusen, have applied the Horstmann-Markusen model. In this paper we apply the Chamberlin-Krugman model.
Strategic Environmental Policy under Free Trade with Transboundary Pollution
Review of Development Economics, 2011
We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse off. This is not due to the terms of trade motive, but rather the incentive, in a strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. Under free trade, internationally nontradable quotas result in the lowest pollution level and strictly welfare-dominate taxes. The ordering of internationally tradable quotas and pollution taxes depends, among other things, on the degree of international pollution spillovers. JEL classification codes: F18, Q56, H23, D62.
The International Trade Journal, 2021
This article examines the environmental regulations of international transport in a two-country model with the international transport sector in each country. International transport generates pollution which is treated as a pure public bad. First, we show that a country may benefit from voluntarily imposing a strict environmental regulation despite this regulation having the effect of shrinking the international transport sector. Second, we find that permit trading between the international transport sectors of two countries benefits an internationaltransport-importing country, while permit trading may harm an international-transport-exporting country even if it receives all of the direct gains from permit trading.
Trade and commodity taxes as environmental instruments in an open economy
Journal of Economic Studies, 2020
PurposeIn a simple reciprocal dumping model of trade, this study scrutinizes the strategic role of trade and commodity taxes as environmental instruments when consumption of an imported product generates pollution. The results suggest that for sufficiently small values of the marginal disutility from pollution, commodity taxes can be preferred over import tariffs, and compared to the case of trade policies, free trade can be welfare dominating even for higher values of the marginal disutility from pollution when commodity taxes are used strategically as environmental instruments.Design/methodology/approachThe authors employ a reciprocal dumping model of trade.FindingsA sufficiently high marginal disutility from pollution (or sufficient asymmetries between the countries in terms of their marginal disutility from pollution) may jeopardize bilateral trade, especially if countries are given the option to set tariffs freely for imported goods (consumption of which generate environmental ...
The Demands for Environmental Regulation and for Trade in the Presence of Private Mitigation
2008
We study the demands by individuals of varying incomes for regulation of both the environment and of trade in the equilibrium a small open economy with two tradable goods, one of which is polluting. Differences in the ability of individuals to afford private mitigation of the adverse consequences of pollution is a central feature of the analysis. Private mitigation leads to an endogenous, unequal distribution of the health-related consequences of pollution across groups in a manner consistent with epidemiologic studies. We show how trade in the presence of private mitigation may polarize the interests of rich and poor with respect to the stringency of regulation, and why the relationship between individual interests and income in equilibrium cannot be well understood by applying a simple normal good argument. Indeed, even in cases where trade has the potential to benefit everyone, we argue that the poor may oppose trade openness because of a concern that laxer environmental regulation will then be imposed in the interest of richer citizens. We explain why heterogeneity in the intensity of preferences, and not just in their direction, is likely to play a role in the determination of collective choices with respect to public policy. We conclude by drawing out some implications of the analysis for the study of the political economy of the environment-trade-welfare nexus.
Strategic Pollution Control under Free Trade
Resource and Energy Economics, 2021
This paper designs a reciprocal dumping model to address the control of industrial pollution between two trading partners. Firms generate transboundary pollution from production and environmental taxes represent the pollution control instrument. We ask whether environmental taxes implemented in a non-cooperative setting are more stringent than the globally efficient level. Relative to the globally efficient case, we find in the linear Markov Perfect Nash Equilibrium (MPNE) context that the tax rate for both countries is smaller and individual emissions are larger. However, these results may not hold in the non-linear MPNE case depending on market structure and environmental conditions. Unlike the symmetric equilibrium case, the tax rates are always discontinuous under asymmetric MPNEs. The asymmetric equilibrium scenario can give rise to higher individual payoffs relative to the symmetric equilibrium case.
The Effect of Free Trade on Pollution Policy and Welfare
2003
In this paper I consider a small economy facing accession to a trade agreement. Before accession the government has control over trade and environmental policy. After accession it retains control over environmental policy but has to allow free trade. Through the analysis I highlight an effect of free trade neglected in the literature so far. Adoption of free trade shifts the economic incidence of pollution tax from consumers onto producers of the polluting good. Under fairly plausible conditions, this change in incidence can reduce the distortion in pollution tax. Even though the choice of accession is influenced by special interest groups, I find that accession can be accompanied by an improvement in pollution policy and an increase in aggregate welfare.
Environmental and Resource Economics, 2013
This paper considers a trade situation where the production activities of potentially heterogeneous countries generate pollution which can cross borders and harm the well-being of all the countries involved. In each of those countries the policy market levies pollution taxes on the polluting firms and a tariff on imports in order to correct that distortion. The purpose of the paper is to investigate the effect of a reduction in the tariff on equilibrium pollution taxes and welfare. The existing literature has investigated this problem for trade between two identical countries. This paper analyzes the problem in the more realistic context where countries are not necessarily identical and trade can be multilateral. It becomes possible to show what bias is introduced when those two realities are neglected. I find that a tariff reduction can actually lower output; it can also lower welfare even if pollution is purely local.
Transboundary pollution and the gains from trade
Journal of International Economics, 2001
We analyze the effects of transboundary pollution on trade and welfare in a general equilibrium model. Production in one industry generates pollution that negatively effects productivity, at home and abroad, in another industry. Trade may lead to the spatial separation of production but does not always lead to efficient patterns of specialization. Transboundary pollution, by breaking the link between the generation and incidence of pollution, can improve the potential for trade to distribute production in an efficient manner. If trade does not efficiently distribute production, transboundary pollution can exacerbate losses from trade potentially causing both countries to lose from trade.
Managed Trade, Trade Liberalisation and Local Pollution
Advances in Economic Analysis & Policy, 2004
The current paper addresses the relationship between trade and endogenous pollution levels, with a focus different from the previous literature. The mechanism linking pollution and trade here is that trade policy provides the home government with a credible threat that helps motivate domestic firms to adopt cleaner technologies. This credible threat comes from the fact that the government has a greater incentive to protect a clean industry than to protect a very polluting one. In that sense, the existence of trade helps reduce domestic pollution compared to what would prevail in a situation of autarky. On the other hand, a commitment to free trade would be counterproductive: it removes the governments ability to credibly threaten lower levels of protection. In fact we show that any trade liberalization hurts the welfare of the home country. In terms of world welfare, moderate trade liberalization is helpful, but only as long as it does not affect the technology choices of the firms...