Open-access renewable resources and pollution: Trade and policy implications in a two-country model

We examine the interaction between the relative inter-industry pollution externality and resource stock externality of harvesting in deciding trade patterns and welfare gains from trade in a two-country model (less-developed countries) with renewable resources in the absence of resource management. This paper focuses on the impacts of trade policies on resource conservation and welfare outcomes in two countries with different environmental management regimes. Differences in pollution management standards between both countries determine the direction of trade flow and gains from trade in a diversified production case. The country with a lower pollution intensity parameter, an exporter of resource goods, certainly experiences welfare loss in the post-trade steady-state and may also suffer a decline in utility throughout the transition path. However, a country with higher pollution intensity and importers of resource goods tend to gain from trade. Under national open-access resources, given that pollution is regulated up to a certain point in both countries, this study finds that implementing better restrictions on only one externality factor is not optimal from a post-trade welfare perspective. Lastly, from the point of view of policy suggestion, this paper offers an optimal trade policy that the economic and environmental effects of enforcing import tax on resource goods are likely to be Pareto-improving consequences compared to the implications of using an export tax.     

International Trade in Hazardous Waste

This paper combines a gravity model with country characteristics to examine trade in hazardous waste. A significant pollution haven effect is observed as rising per capita income reduces the amount of hazardous waste countries' import. However, this effect is outweighed by high-income countries' relative capital abundance, and by rising GDP creating larger increases in disposal capacity than waste production. Simulating the volume and direction of hazardous waste trade in the absence of distance costs, leads to a 153% increase in waste traded, and a larger increase in shipments from non-OECD countries to OECD members than from the OECD to nonmembers.     

Trade liberalization in environmental goods

Trade negotiations have started to pay attention to liberalization in environmental goods (EGs), whose production may require dirty intermediate goods. We construct a two-country trade model to explore the effects of trade liberalization in EGs on the local pollution, the global environment and welfare in the presence of such an environmental conundrum. We find that countries do not necessarily benefit from trade liberalization in EGs in the absence of an environmental policy. With the assistance of an upstream pollution tax, trade liberalization in EGs improves each country's welfare. This result holds independent of whether the upstream market is competitive or not, or whether we have upstream trade across countries. For asymmetric countries, trade liberalization in EGs improves the world welfare and the welfare for the country if it has a smaller demand for EGs; or experiences less damage from the production of dirty inputs; or values environment improvement more.     

Trade Structure, Transboundary Pollution and Multilateral Trade Liberalization: The Effects on Environmental Taxes and Welfare

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 maker 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.     

Trade,Strategic Environmental Policy,and Global Pollution

This paper examines the effects of international trade in a model with global pollution that accumulates over time because of production emissions in each country. If countries cooperatively determine their environmental policies, autarky and free trade in the absence of trade costs generate the same optimal solution. By contrast, if environmental policies are determined noncooperatively, the effects of trade on global pollution and welfare are ambiguous because policy games can result in multiple equilibria. Although trade increases both the lower and upper bounds of the pollution stock, whether trade expands the range of possible steady‐state pollution levels is ambiguous. The analysis then extends to consider trade costs.     

Trade and Global Pollution in Dynamic Oligopoly with Corporate Environmentalism

This paper examines the effects of international trade in the presence of dynamic oligopolistic competition where the stock of global pollution has a negative welfare effect and the oligopolists' objectives may include society's pollution damage as well as private profits. In a symmetric case where the number of firms, emission coefficient, and firms' environmental consciousness are the same in two countries, an opening of trade unambiguously improves each country's welfare in the short run. In the long run, however, trade increases the stock of global pollution and hence, whether opening of trade is beneficial depends on the parameters of the economy. If there are asymmetries between countries, the short‐run gains from trade in both countries are not necessarily guaranteed, because trade liberalization may increase output in one country and reduce it in the other. Moreover, free trade may result in lower pollution stock than under autarky.     

Is Corporate Environmentalism Good for Domestic Welfare?

Many private firms voluntarily care about the environment and declare that their products and production processes are environmentally friendly. This paper shows that corporate environmentalism may reduce the effectiveness of government policies. A simple third‐market trade model with strategic environmental and trade policy is employed, in which an environmentally conscious domestic firm competes with a profit‐maximizing foreign firm. It is shown that even if emission taxes and export subsidies are both available, corporate environmentalism may reduce domestic welfare when pollution is transboundary. In the realistic situation where export subsidies are prohibited, welfare may fall even if pollution is local.     

Trade Liberalization and Environmental Regulation on International Transportation

Incorporating pollution emissions from international transportation into a model of strategic trade and environmental policies, we investigate the effect of trade liberalization and environmental regulation on national welfare and the environment. Our model includes imperfectly competitive markets for international transportation and final products. We find that trade liberalization may reduce each country's welfare unless some level of environmental regulation on international transportation is in place. When international trade is liberalized initially, a mutual increase in the common emission tax rates may improve each country's welfare. However, when international trade is highly protected initially, imposing an emission tax may reduce welfare.     

Regional versus Multilateral Trade Liberalization,Environmental Taxation,and Welfare

The paper considers trade between identical countries with imperfectly competitive markets, and compares the impacts of regional and multilateral tariff reduction on strategic environmental taxation and welfare. While both forms of trade liberalization increase production and consumption in tariff‐reducing countries, regionalism also reduces production in a non‐participating country and may decrease its consumption. Consequently, regionalism and multilateralism change pollution tax and welfare in the tariff‐reducing countries in similar ways when pollution is local, but in dissimilar ways for global pollution. When pollution is global, regionalism is likely to be preferred to multilateralism for the establishment of free trade among countries.     

Free trade and the burden of domestic policy

Abstract. Consider a small economy facing accession to a exogenously defined trade agreement. Before accession, the government controls trade and pollution policy. After accession, it retains control over pollution policy, but must allow free trade in all goods. This is a choice many governments face while joining trade agreements today. They decide whether greater market access to other members is more valuable than control over trade policy. I ask two questions. All else being equal what happens to environmental policy after accession? Second, what affects the choice of accession and how does this choice impact aggregate welfare? I show that a loss in control over trade policy alters the political incentives determining environmental policy. Before accession, producers can transfer a portion of their burden of environmental regulation to consumers through price increases. After accession the same regulation is borne entirely by producers. Owing to the change in burden, there exist plausible conditions under which the adoption of free trade can lead to more stringent environmental regulation, a reduction in the preferential treatment of special interest groups, and an increase in aggregate welfare.     

Cross-Border Pollution,Terms of Trade,and Welfare

We construct a two-good general equilibrium model of international trade for two small open economies where pollution from production is transmitted across borders. Governments in both countries impose emission taxes non-cooperatively. Within this framework, we examine the effect of changes in the degree of cross-border pollution on Nash emission taxes, emission levels and welfare. We do so under two scenarios: when changes in cross-border pollution do not affect domestic pollution (non-strategic) and when they do (strategic). We also examine the effect of changes in international terms of trade on pollution and welfare when cross-border pollution is non-strategic.      

Transboundary Pollution and the Welfare Effects of Technology Transfer

We examine the welfare effects of a transfer of pollution abatement technology in a two-country model. In each country, one industry discharges pollution as a byproduct of output, and the sum of domestic and cross-border pollution decreases the productivity of the other industry. We show the effects of technology transfer on the terms of trade, pollution levels, and welfare. Technology transfer decreases the pollution affecting each country under certain conditions. We derive and interpret the conditions under which technology transfer enriches the donor and the recipient. The results essentially depend on the trade pattern and the fraction of cross-border pollution.     

Renewable Resources,Pollution and Trade

Detrimental spillovers from industrial activity onto resource‐based productive sectors are very common, yet their effects remain understudied. While international trade often creates conditions for the over‐exploitation of open‐access renewable resources, it also provides opportunities for separating different productive sectors spatially. The existing literature suggests that a diversified exporter of the renewable resource good tends to lose from trade in both welfare and conservation terms as a result of over‐depletion, while the exporter of the non‐resource good gains. However, the resource stock externality of harvesting and the inter‐industry pollution externality often coexist in reality. In a small open economy framework, this paper shows that acknowledging their interaction changes the nature of the autarkic equilibrium and enriches the set of resource conservation and welfare outcomes from trade. Depending on the relative damage inflicted by the two industries on the environment, which in turn are functions of the pollution intensity and bioeconomic parameters, it is possible that the inter‐sectoral pollution externality persists and specialization in manufacturing is not optimal from a welfare perspective.     

Environmental Protection and Trade Liberalization in a Small Open Dual Economy

The author investigates the conditions under which environmental protection and trade liberalization might improve urban unemployment and welfare in a small open Harris–Todaro model with polluting urban manufacturing. While a tariff reduction decreases manufacturing employment, a rise in the pollution tax rate may increase it when a dirty input is complementary to capital. Environmental protection and trade liberalization are consistent in reducing the level of urban unemployment because they lower it under the same condition. They are consistent in increasing GDP if a rise in the pollution tax rate decreases manufacturing employment. Otherwise, trade liberalization will mitigate a decrease in GDP because of environmental protection if the degree of urbanization is low and if rural technology exhibits weak diminishing returns to labor. This GDP effect plays a central role in welfare improvement.     

Strategic Environmental Policies and the Gains from Trade Liberalization

The literature on strategic environmental policy has not fully addressed welfare effects of trade liberalization from autarky. In a reciprocal market model of duopoly with transboundary pollution, we study how reductions in transport costs and import tariffs affect the Nash‐equilibrium welfare of an environmental policy game as compared to any initial state including autarky. We show three patterns of gainfulness of trade depending on the interaction between marginal damage from pollution and the degree of transboundary pollution.     

Tourism and the environment

This paper examines the effects of pollution taxes on welfare and environment for a small open economy. In the presence of tourism, pollution taxes provide a double dividend of less pollution and improvements in the tourism terms of trade. The optimal pollution taxes are derived under exogenous and endogenous tourism, and they can be greater or less than the marginal damage of pollution perceived by the domestic residents. Numerical simulations show that the optimal tax rate is larger under exogenous tourism.     

Transboundary Pollution and International Migration

We analyze the welfare effects of international migration in the presence of transboundary pollution. We use a simplified Copeland and Taylor (1999) model, where the (developed) home country's pollution abatement technology is superior to that of the (less developed) foreign country. If there is no trade, workers will migrate from the foreign country to the home country. The foreign country gains from migration, but whether the home country gains or not depends on the abatement‐technology gap and the magnitude of the coefficient of transboundary pollution. World welfare will increase under migration. If there is free trade in goods, international migration occurs when the home country specializes in the production of the environmentally sensitive good. In this case, migration will result in increased production of the manufactured good and increase the level of world pollution.     

Market Integration and Competition in Environmental and Trade Policies

Recent empirics suggest the relevance of transport cost reductions for world trade growth along with eliminations in protectionist trade barriers. To address the welfare effects of trade cost reductions in a context of ??trade and the environment,?? we develop a two-stage game model where governments choose environmental and trade policies and firms play a Cournot-Nash game. We show that reductions in transport costs lead to lower emission taxes and higher tariffs. And, we find that the degree of pollution damage plays a central role in whether market integration is welfare-improving relative to autarky.     

Strategic Environmental Policy under Free Trade with Transboundary Pollution

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.     

Regionalism and the Rest of the World: Theory and Estimates of the Effects of European Integration

There are no satisfactory ex post estimates of the effects of regional integration on excluded countries' welfare. Using a formal decomposition of welfare, this paper discusses the factors that might affect these countries' welfare and aspects of their measurement. It then surveys various ex ante estimates of the effects of European integration. These suggest that neighboring countries linked tightly to the European economy could lose significantly from the latter's integration, but that for other countries the losses are likely to be very small.