The dynamic impact of unilateral environmental policies

SSRN Electronic Journal, 2000

In an open economy, can unilateral environmental policies undertaken by a group of committed countries ensure sustainable growth? This paper addresses this question in a dynamic model with directed technical change. There are two countries and two tradeable goods. One of the two goods (the polluting good) is produced with a clean input and a dirty input, which causes a global externality. Innovation can be targeted at both sectors and, within the polluting sector, at clean or dirty technologies. For most of the analysis, innovation is local. I show that carbon taxes in a single country are generally unable to ensure sustainable growth, that is, to prevent environmental quality from falling below some critical threshold. A temporary combination of clean research subsidies and a tari¤ in a single country can ensure sustainable growth for su¢ ciently large initial quality of the environment-in some cases, clean research subsidies alone may not do so. I characterize the …rst best policy, the world optimal policy under the constraint that one country must be in laissez-faire, and the optimal policy from the point of view of a single country. Calibrated numerical simulations show that, relative to autarky, trade accelerates environmental degradation, but that when one country undertakes the appropriate policies, trade helps reducing environmental degradation. Finally, I add knowledge spillovers and show that carbon taxes in a single country are still generally unable to ensure sustainable growth.

2014

This paper builds a two-country, two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The polluting good generates more or less emissions depending on its relative use of a clean and a dirty input. I show that a unilateral policy combining clean research subsidies and a trade tax can ensure sustainable growth, while unilateral carbon taxes alone generally cannot. Relative to autarky and exogenous technical change respec-tively, the mechanisms of trade and directed technical change accelerate environmental degradation either under laissez-faire or with unilateral carbon taxes, yet both help reduce environmental degradation under the appropriate unilateral policy. I characterize the opti-mal unilateral policy analytically and numerically using calibrated simulations. Knowledge spillovers have the potential to reduce the otherwise large welfare costs of restricting policy to o...

2012

In a bipolar world with two different regions, this paper analyzes the circumstances under which the determination of one region to acknowledge the problem of global warming when choosing optimal emissions does not induce its counterpart to take advantage and increase its own emissions. Further we analyze if a global reduction in emissions does necessarily lead to a reduction in the speed of growth. Growth in both regions comes as a result of an increment in the number of varieties of intermediate goods, while emissions are linked to the production of final output which utilizes timber as a productive input. Forests act as a carbon sink, and are located in the region unconcerned about the effect of its productive process on the emission of pollutants, and finally about the problem of global warming. This region trades forest products in exchange for technology developed in a technologically leading region. Economic growth and environmental quality are compared when this latter regio...

Economic Modelling, 2009

We analyze how changes in trade openness are related to induced technological innovations that are not only GDP increasing but also pollution saving. Our model includes by-products of carbon dioxide and sulfur dioxide emissions. We estimate a directional distance function for 76 countries over the period 1963-2000 to measure exogenous and trade-induced technological change. On average, we find substantial trade-induced technological progress, and its magnitude is about one third of the overall technological change. The tradeinduced technological changes, however, are GDP reducing and pollution increasing. Empirically, we find that increased trade openness correlates to increased pollution.

Advances in Economic Analysis & Policy, 2004

Our paper focuses on the role of endogenous technology and technology spillovers in explaining cross country differences in pollution and the pollution haven effect of international trade. In our North-South trade model, technology is endogenously developed by the North and imitated by the South. Environmental regulators choose national environmental policies by trading off the income gains and the disutility from a rise in pollution. Differences in environmental stringency are entirely driven by differences in investment opportunities and distortions that follow from the difference in intellectual property rights protection. We show that without goods trade and in the absence of technology subsidies, the North imposes more stringent environmental regulation than the South. When opening up to trade, the South experiences a rise in prices for pollution-intensive goods and tends to raise pollution as in a standard trade model. Induced technical change, however, may reverse this pollution haven effect.

2015

We analyze the effects of environmental taxation on the pattern of and gains from trade in a two-country Ricardian framework, where production in a polluting sector (e.g. manufacturing) adversely affects productivity in an environmentally sensitive sector (e.g. agriculture). The two countries differ in terms of their production technology so that the productivity loss suffered by the environmentally sensitive sector is higher in the dirtier country. When the countries do not pursue any environmental policy, the dirtier country has a comparative advantage in the polluting good and exports that good in the trading equilibrium. If preference for the polluting good is low, the dirtier country loses from trade while its trading partner gains. Global gains from trade are also negative as the market determined pattern of trade is inefficient. Introduction of a unilateral pollution tax by the dirtier country can enable it to reverse the pattern of trade and the distribution of the gains fro...

Our paper focuses on the role of endogenous technology and technology spillovers in explaining cross country differences in pollution and in influencing the pollution haven effect of international trade. We present a North-South trade model, in which technology is endogenously developed in the North and adopted in the South. The model features environmental regulators who choose national environmental policies by trading off the income gains from a rise in pollution against the disutility from additional pollution. We rule out both differences in environmental stringency through income effects and from differences in factor-endowments which traditionally give raise to pollution havens. We show that without goods trade and in the absence of technology subsidies the North imposes more stringent environmental regulation than the South. Moving to the trading equilibrium, we show that with exogenous technology the standard results arise in our model: trade makes the South specialise in pollution-intensive goods. We furthermore show that when technological change is endogenous this pollution haven effect can be reversed, depending on how well polluting inputs can be substituted by other inputs.

The Annals of Regional Science, 2008

We consider a non-cooperative symmetric three-stage game played by a pair of regulator-firm hierarchies to capture the scale and technological effects of opening markets to international trade. Each firm produces one good sold on the market. The production process generates pollution characterized by a fixed emission/output ratio, and crosses the borders. Firms can invest in R&D in order to lower their emission ratio, and this activity is characterized by positive R&D spillovers (β). We show that R&D spillovers and the competition of firms on the common market help non-cooperating countries to better internalize transboundary pollution. When the R&D spillover increases, pollution decreases in most cases, and increases in some others. However, the social welfare improves with β. Opening markets to international trade leads to both more investment in R&D and more production, and to a lower emission ratio. In most cases, pollution in common market is lower than in autarky, implying a greater social welfare. Nevertheless, in some other cases, international trade increases pollution and therefore reduces the social welfare.

Environmental Modeling & Assessment, 2019

We provide insights into the relationships between technological development, economic growth, and pollution accumulation, using a two-sector model of economic growth with endogenous technical change. In the model, output is produced using a polluting resource. Production can be used for either consumption or abatement of pollution. Scientists can be allocated between two research activities: resource-saving and abatement-augmenting technologies. Our results indicate conditional path dependency. Specifically, when the innovative capacity in the resource-saving research sector is sufficiently high, scientists are allocated to improve only the resource-saving technology, independently of the state of the technologies and environment. Consequently, the allocation of researchers is path-independent. When the innovative capacity in the abatement-augmenting research sector is sufficiently high, the optimal allocation of researchers depends on the initial level of the pollution stock or technologies but eventually will be directed to improve the abatement technology. We further characterize the optimal steady-state and off-steady-state dynamics and show that green growth is always socially optimal. By using a two-sector model, we address a lack of attention to multi-sector growth models in neoclassical growth theory and show that distinct results and transitional dynamics can emerge.

Review of International Economics, 2009

This paper examines linkages between international trade, environmental degradation, and economic growth in a dynamic North-South trade game. Using a neoclassical production function subject to an endogenously improving technology, North produces manufactured goods by employing labor, capital, and a natural resource that it imports from South. South extracts the resource using raw labor, in the process generating local pollution.We study optimal regional policies in the presence of local pollution and technology spillovers from North to South under both non-cooperative and cooperative modes of trade. Non-cooperative trade is inefficient due to stock externalities. Cooperative trade policies are efficient and yet do not benefit North. Both regions gain from improved productivity in North and faster knowledge diffusion to South regardless of the trading regime.r oie_800 906..