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Trading rules and the environment: Does equal treatment lead to a cleaner world?

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Author Info

  • Ferrara, Ida
  • Missios, Paul
  • Murat Yildiz, Halis

Abstract

In this paper, we consider a three-stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform (Most Favored Nation, MFN) tariffs on countries' choice over environmental standards for varying degrees of pollution spillovers. Because of the presence of punishment effects and stronger own and cross-tariff effects, we find that discrimination yields higher standards than MFN (and free trade) independently of the extent of pollution spillovers. When pollution is local and incentives to free ride on other countries' abatement efforts are weak, we show, however, that welfare is larger under MFN than under discrimination. In a dynamic setting, we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement (IEA) and obtain that multilateral cooperation is easier to sustain under discrimination than under MFN (or free trade).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 58 (2009)
Issue (Month): 2 (September)
Pages: 206-225

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Handle: RePEc:eee:jeeman:v:58:y:2009:i:2:p:206-225

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Environmental standards Abatement International trade MFN clause;

References

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  1. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation during the Formation of Customs Unions," NBER Working Papers 4543, National Bureau of Economic Research, Inc.
  2. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
  3. Bagwell, Kyle & Staiger, Robert W, 1998. "Will Preferential Agreements Undermine the Multilateral Trading System?," Economic Journal, Royal Economic Society, vol. 108(449), pages 1162-82, July.
  4. Ulph, A., 1994. "Strategic environmental policy and international trade: the role of market conduct," Discussion Paper Series In Economics And Econometrics 9415, Economics Division, School of Social Sciences, University of Southampton.
  5. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
  6. Brian R. Copeland & M. Scott Taylor, 1997. "A Simple Model of Trade, Capital Mobility, and the Environment," NBER Working Papers 5898, National Bureau of Economic Research, Inc.
  7. Ulph, Alistair Mitchell, 1994. "Strategic Environmental Policy and International Trade - The Role of Market Conduct," CEPR Discussion Papers 1065, C.E.P.R. Discussion Papers.
  8. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 2000. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 2480, C.E.P.R. Discussion Papers.
  9. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
  10. Damania, Richard & Fredriksson, Per G. & List, John A., 2003. "Trade liberalization, corruption, and environmental policy formation: theory and evidence," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 490-512, November.
  11. Burguet, Roberto & Sempere, Jaume, 2003. "Trade liberalization, environmental policy, and welfare," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 25-37, July.
  12. Odd Rune Straume, 2006. "Product Market Integration and Environmental Policy Coordination in An International Duopoly," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(4), pages 535-563, August.
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Citations

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Cited by:
  1. BENCHEKROUN, Hassan & MURAT YILDIZ, Halis, 2010. "Free Trade, Autarky and the Sustainability of an International Environmental Agreement," Cahiers de recherche 12-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Per G. Fredriksson & Xenia Matschke, 2014. "Trade Liberalization and Environmental Taxation in Federal Systems," CESifo Working Paper Series 4717, CESifo Group Munich.
  3. Horn, Henrik, 2009. "The Burden of Proof in National Treatment Disputes and the Environment," CEPR Discussion Papers 7316, C.E.P.R. Discussion Papers.
  4. Thomas Eichner & Rüdiger Pethig, 2013. "Trade Tariffs and Self-Enforcing Environmental Agreements," CESifo Working Paper Series 4464, CESifo Group Munich.
  5. Horn, Henrik, 2011. "The burden of proof in trade disputes and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 15-29, July.
  6. Hadjiyiannis Costas & İriş Doruk & Tabakis Chrysostomos, 2012. "International Environmental Cooperation under Fairness and Reciprocity," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-30, August.

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