Bilateral trade and the environment

Abstract:
This study develops a trade–environment model based on new trade theory and emphasizes the role of international productivity differences in quantifying environmental consequences of trade. I introduce environmental policy and factor endowment differentials into a multi-country general equilibrium model of bilateral trade with random productivities and trade barriers. I calibrate the model for the OECD countries by estimating trade barriers and productivity parameters so as to match bilateral manufacturing trade shares. The calibrated model is used to analyze impacts of free trade and two types of environmental harmonization policies. I find that full trade liberalizations help to lower OECD pollution emissions by 32%, and about half of the decline in pollution is due to international productivity differences. I also show that harmonization of environmental taxes across the OECD countries is predicted to be more effective than the harmonization of pollution quotas in reducing aggregate pollution while under both policies trade impacts are relatively small.

Full-text available in .pdf

Advertisements

Comments do not require moderator approval but this will only last as long as everyone plays fair

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s