Can Trade be good for the environment?

Article, Preprint OPEN
Lapan, Harvey E. ; Sikdar, Shiva (2014)
  • Publisher: Wiley
  • Related identifiers: doi: 10.1111/jpet.12176
  • Subject: HD28 | Strategic environmental policy; leakage e ect; intra-industry trade; transboundary pollution. | GE | HF
    • jel: jel:Q56 | jel:F | jel:H | jel:H23 | jel:Q | jel:F18

We analyze the impact of trade in a differentiated good on environmental policy when there is local and transboundary pollution. In autarky, the (equivalent) pollution tax is set equal to the marginal damage from own emissions. If the strategic policy instrument is a tax, leakage occurs under trade and tends to lower the tax. The net terms of trade effect, due to the exportable and importable varieties of the differentiated good, tends to increase the tax. We derive conditions under which pollution taxes under trade are higher than the marginal damage from own emissions, i.e., higher than the Pigouvian tax and than that under autarky. Then, pollution falls under trade relative to autarky. When countries use quotas/permits to regulate pollution, there is no leakage, while the net terms of trade effect tends to make pollution policy stricter. The equivalent tax is always higher than the marginal damage from own emissions, i.e., always higher than the Pigouvian tax and than that under autarky; hence, pollution always falls under trade. Our analysis provides some insight into the findings in the empirical literature that trade might be good for the environment.
  • References (21)
    21 references, page 1 of 3

    [1] Antoniou, F., Hatzipanayotou, P. and Koundouri, P. (2014). Tradable Permits vs. Ecological Dumping when Governments Act Non-cooperatively. Oxford Economic Papers, 66(1), 188-208.

    [2] Antweiler, W., Copeland, B. R. and Taylor, M. S. (2001). Is Free Trade Good for the Environment? American Economic Review, 91, 877-908.

    [3] Armington, P. S. (1969). A Theory of Demand for Products Distinguished by Place of Production. IMF Sta Papers, XVI, 159-176.

    [4] Benarroch, M. and Weder, R. (2006). Intra-industry Trade in Intermediate Products, Pollution and Internationally Increasing Returns. Journal of Environmental Economics and Management, 52, 675-689.

    [5] Bernhofen, D. M. (1999). Intra-industry Trade and Strategic Interaction: Theory and Evidence. Journal of International Economics, 47, 225-244.

    [6] Brander, J. and Krugman, P. (1983). A `Reciprocal Dumping' Model of International Trade. Journal of International Economics, 15, 313-321.

    [7] Copeland, B. R. and Taylor, M. S. (1995). Trade and Transboundary Pollution. American Economic Review, 85, 716-737.

    [8] Copeland, B. R. and Taylor, M. S. (2004). Trade, Growth and the Environment. Journal of Economic Literature, 42(1), 7-71.

    [9] Dixit, A. and Norman, V. (1980). Theory of International Trade. Cambridge University Press, Cambridge.

    [10] Ederington, J. and Minier, J. (2003). Is Environmental Policy a Secondary Trade Barrier? An Empirical Analysis. Canadian Journal of Economics, 36, 137-154.

  • Metrics
    No metrics available
Share - Bookmark