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Will Trade Liberalization Harm the Environment? The Case of Indonesia to 2020

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  • Anna Strutt

    ()

  • Kym Anderson

    ()

Abstract

Most-favoured-nation (MFN) trade liberalizations willalways improve global economic welfare providedglobally optimal environmental and other policies arein place. But since the latter proviso is not met inpractice, empirical studies of the environmental andresource depletion effects of such reforms are neededto determine whether trade reform is still worthwhile.This paper provides a methodology for doing that. Itis illustrated with a case study of Indonesia, a largenewly industrializing country that is rich in naturalresources and committed to taking part in majormultilateral and regional trade liberalizations overthe next two decades. A modified version of theglobal CGE model known as GTAP is used to project theworld economy to 2010 and 2020 without and with thosereforms. An environmental module is attached to theIndonesian part of that global CGE model so as tomeasure the effects of changes in economic activity onair and water pollution. The proportionalcontributions to environmental indicators of changesin the level and composition of output, and changes inproduction techniques, are identified. A base caseprojection without trade reform is compared withalternative scenarios involving full globalimplementation of Uruguay Round commitments by 2010,and the additional move to MFN free trade by APECcountries by 2020. The study suggests that, at leastwith respect to air and water, trade policy reformsslated for the next two decades would in many casesimprove the environment and reduce the depletion ofnatural resources and in the worst cases would addonly slightly to environmental degradation – evenwithout toughening the enforcement of existingenvironmental regulations or adding new ones, and evenif the reforms stimulate a faster rate of economicgrowth. Copyright Kluwer Academic Publishers 2000

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 17 (2000)
Issue (Month): 3 (November)
Pages: 203-232

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Handle: RePEc:kap:enreec:v:17:y:2000:i:3:p:203-232

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: global CGE model; Indonesia; trade and environment;

References

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  1. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  2. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
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  6. Ann Harrison, 1995. "Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries," NBER Working Papers 5221, National Bureau of Economic Research, Inc.
  7. Baldwin, Richard, 1990. "Measurable Dynamic Gains from Trade," Working Paper Series 270, Research Institute of Industrial Economics.
  8. M.A. Cole & A.J. Rayner & J.M. Bates, 1998. "Trade Liberalisation and the Environment: The Case of the Uruguay Round," The World Economy, Wiley Blackwell, vol. 21(3), pages 337-347, 05.
  9. Martin, W. & Winters, L.A., 1995. "The Uruguay Round and the Developing Countries," World Bank - Discussion Papers 307, World Bank.
  10. W. Jill Harrison & K.R. Pearson, 1994. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Centre of Policy Studies/IMPACT Centre Working Papers ip-64, Victoria University, Centre of Policy Studies/IMPACT Centre.
  11. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
  12. Beghin, John & Dessus, Sebastien & Roland-Holst, David & van der Mensbrugghe, Dominique, 1997. "The trade and environment nexus in Mexican agriculture. A general equilibrium analysis," Agricultural Economics, Blackwell, vol. 17(2-3), pages 115-131, December.
  13. Liu, Jing & Nico van Leeuwen & Tri Thanh Vo & Rod Tyers & Thomas W. Hertel, 1998. "Disaggregating Labor Payments by Skill Level in GTAP," GTAP Technical Papers 314, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  14. Kym Anderson & Mari Pangestu, 1998. "Structural Changes in a Reforming World Economy: Implications for Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(3), pages 85-113.
  15. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
  16. Beghin, John C. & Bowland, Brad J. & Dessus, Sebastien & Roland-Holst, David & Van der Mensbrugghe, Dominique, 1999. "Trade, Environment, and Public Health in Chile. Evidence from an Economywide Model," Staff General Research Papers 1904, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. Coxhead, Ian, 2002. "Development and the Environment in Asia: A Survey of Recent Literature," Staff Paper Series 455, University of Wisconsin, Agricultural and Applied Economics.
  2. 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.
  3. Gumilang, Howard & Mukhopadhyay, Kakali & Thomassin, Paul J., 2011. "Economic and environmental impacts of trade liberalization: The case of Indonesia," Economic Modelling, Elsevier, vol. 28(3), pages 1030-1041, May.
  4. Hadjinikolov, Dimitar, 2010. "Глобалното Направление На Общата Търговска Политика На Ес В Началото На Новия Век
    [Global direction of EU common commercial poli
    ," MPRA Paper 25244, University Library of Munich, Germany.
  5. Coxhead, Ian, 2007. "A New Resource Curse? Impacts of China's Boom on Comparative Advantage and Resource Dependence in Southeast Asia," World Development, Elsevier, vol. 35(7), pages 1099-1119, July.
  6. Rae, Allan N. & Strutt, Anna, 2007. "The WTO, Agricultural Trade Reform and the Environment: Nitrogen and Agro-chemical Indicators for the OECD," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 8(1).
  7. Bohringer, Christoph & Loschel, Andreas, 2006. "Computable general equilibrium models for sustainability impact assessment: Status quo and prospects," Ecological Economics, Elsevier, vol. 60(1), pages 49-64, November.
  8. Anderson, Kym & Strutt, Anna, 1999. "Impact Of East Asia’s Growth Interruption and Policy Responses: The Case Of Indonesia," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 125027, Australian Agricultural and Resource Economics Society.
  9. Anriquez, Gustavo, 2002. "Trade And The Environment: An Economic Literature Survey," Working Papers 28598, University of Maryland, Department of Agricultural and Resource Economics.

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