Trade, Growth, and Environmental Quality

1995

The effects of environment on trade and welfare are analyzed in a modified Heckscher-Ohlin framework using a quasi-homothetic preferences to account for differences in countries' expenditure shares on health. Three types of pollution, local-disembodied, global-disembodied and embodied, result as a by-product of inputs used in production. For each case, the Walrasian, Pareto optimal and the Regulators' problem are analyzed. The

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.

Journal of International Development, 2013

This paper explores the interrelations between economic growth, international trade and environmental degradation both theoretically and empirically. Panel data from developed and developing countries for the period of 1980 to 2003 is used and previous critique, especially on the econometric specification, is embedded. In particular, it is not assumed that there is a single link for all countries. Several environmental factors and one sustainability indicator are analyzed for the full sample, regions and income groups.

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.

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.

Theoretical Economics Letters, 2014

The aim of this work is to depict the main characteristics of the optimal environmental policy under endogenous terms of trade and economic growth. Here, endogenous terms of trade are inferred from the price of an aggregate consumption good. Our results show that when emissions of a global pollutant affect the environment and, therefore, the utility of the economic agents, the optimal policy consists in a pollution tax on production.

Ecological Economics, 2001

We develop a simulation model to analyze the trade-environment-development system that contains a number of important advances over the earlier and current theoretical models. Our model, like other models, has an income-induced pollution policy, allows country factor endowments to influence trade patterns, and allows production factors to be mobile intersectorally. Unlike other theoretical models, our model treats pollution stemming from both production and consumption in a way that does justice to empirical observations. We model pollution policy explicitly as an abatement investment, thus effectively allowing for differences in pollution-intensive technology across countries. In addition, we allow for an internationally traded intermediate good (a natural resource). As a result of this novel approach, we find that (1) the benefits of trade (i) can be either positive or negative, and (ii) depend on country endowments; and (2) the pollution effects of trade are closely tied to the benefits of trade. Our model generally shows higher pollution levels under free trade than autarky; however, our results do not support the pollution haven hypothesis (i.e. trade causes less pollution in developed countries and more pollution in developing ones). Some developing countries produce more of the pollution-intensive good, but ultimately consume less pollution under autarky because they have higher per capita income and, thus, invest more heavily in environmental upgrading under autarky.

SSRN Electronic Journal, 2000

In this paper we present and analyze a stylized model of endogenous growth with international technology spillover effects from the North to the South. The model allows for endogenous structural change and environmental degradation that reduces world output. We find that within this framework the costless technological spillovers foster structural change in both more and less advanced economies. Moreover, we can show that under technological spillovers the degradation of the environment is expected to be lower even without government interventions and we highlight the role of endogenous structural change in generating this outcome.

Modeling and Control of Economic Systems 2001, 2003

A model with two different regions that trade with each other is presented. The South specializes in a resource intensive good while the North specializes in a capital intensive good. The North-South trade and the management of natural resources are modelled in a dynamic way so that sustainable economic growth can be analyzed. The existence of balanced paths that allow sustained growth in the North and permanent growth of consumption in the South without exhausting Southern natural resources is proved. The transitional dynamics to a balanced path is also studied.

The effects of environmental policy on trade and social welfare are analyzed in a modified Heckscher-Ohlin framework where pollution is embodied in a good consumed. Utility is non-homothetic to account for changes in the demand for healthy goods when income increases. If the polluting input is used intensively, taxing it alone can cause an increase in the good's level of pollution concentration. Instead, a tax on the polluting input in combination with a subsidy to the non-polluting input can result in Pareto improvement. Contrary to other approaches, an abatement policy does not necessarily have a negative effect on a country's comparative advantage. However, if the country is large, change in terms of trade may cause one country to be made better off at the expense of the other, which suggests that compensatory payments may be required to encourage abatement policies.

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...

2000

It is common for studies on trade and environment issues to model trade patterns as driven by environmental considerations. Under conditions of trade liberalization, these studies predict the rise of pollution havens and an increase in global pollution. The extant empirical literature, however, gives only mixed support at best for the notion that trade patterns are influenced by environmental issues. We develop a simple model to investigate whether trade based on traditional comparative advantage may lead to increased global pollution. We find that trade may lead to increased global pollution if both trading nations exhibit increasing marginal disutilities of pollution. This article will analyze the reaction of national consumption, production, and pollution abatement activities as nations liberalize their trading regimes. Previous literature in the trade-environment area has focused on the creation of "pollution havens'' as trade is liberalized; however, this emphasis is at odds with the empirical evidence. Therefore, we will focus on the channels that affect the environment when the pattern of trade is not driven by the pollution haven effect.

2001

Economic theory suggests that liberalization of trade between countries with differing levels of environmental protection could lead pollution-intensive industry to concentrate in the nations where regulations are lax. This effect, often referred to as the "pollution haven" hypothesis, is much discussed in theory, but finds only ambiguous support in empirical research to date. Methodologies used for research on trade and environment differ widely; many are difficult to apply to practical policy questions.

For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The debate

OECD Development Centre Working Papers, 1994