Interest Groups, Trade Liberalization, and Environmental Standards |
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Authors: | Yu-Bong Lai |
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Institution: | (1) Department of Public Finance, National Taipei University, 67, Sec. 3, Ming-Sheng E. Road, Taipei, 104, Taiwan |
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Abstract: | In considering a country that imposes a minimum standard on an imported polluting good, which generates negative consumption
externalities, we construct a common-agency model, in which a domestic environmental group and a foreign industrial lobby
can influence the formation of the minimum standard by providing political contributions to the government. This paper investigates
the effects of trade liberalization on the political equilibrium environmental standard, the pattern of trade, environmental
disutility, and social welfare. We find that trade liberalization tightens the minimum standard, decreases imports of the
polluting good, and reduces environmental disutilities. The importing country’s social welfare, however, does not necessarily
increase with trade liberalization. The weaker the environmental group’s lobbying efficiency, or the stronger the foreign
firm’s lobbying efficiency, the more likely it is that trade liberalization will enhance the importing country’s welfare. |
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Keywords: | consumption externality environmental regulation interest groups minimum standard trade liberalization |
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