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Pollution effects of free trade areas: Simulations from a general equilibrium model

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  • Nicolas Peridy

Abstract

A two-factors, two-goods, three-countries general equilibrium model is developed to assess the effects of a Free Trade Area (FTA) on pollution emissions. It also makes it possible to compare the effects of a discriminating commercial policy with alternative-non discriminating-policies, such as full trade liberalization or non-discriminating protection. A theoretical model is first developed in order to take into account country-differences in factor endowment, environmental regulation, pollution abatement technology, marginal disutilities of pollution, as well as terms of trade effects. This model is subsequently calibrated and computed in accordance with empirical evidence. The main conclusion shows that the move from protection to FTA reduces world pollution emissions. A second result indicates that, in case of full trade liberalization, world pollution is further reduced.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 20 (2006)
Issue (Month): 1 ()
Pages: 37-62

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Handle: RePEc:taf:intecj:v:20:y:2006:i:1:p:37-62

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Related research

Keywords: Trade; free trade areas; environment; pollution; general equilibrium models;

References

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  1. Cole, Matthew A., 2004. "Trade, the pollution haven hypothesis and the environmental Kuznets curve: examining the linkages," Ecological Economics, Elsevier, vol. 48(1), pages 71-81, January.
  2. Josh Ederington & Jenny Minier, 2000. "Is Environmental Policy a Secondary Trade Barrier? An Empirical Analysis," Econometric Society World Congress 2000 Contributed Papers 1507, Econometric Society.
  3. Josh Ederington, Arik Levinson, and Jenny Minier, 2004. "Trade Liberalization and Pollution Havens," Working Papers gueconwpa~04-04-05, Georgetown University, Department of Economics.
  4. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers 6707, National Bureau of Economic Research, Inc.
  5. Arik Levinson, 2000. "The Missing Pollution Haven Effect," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(4), pages 343-364, April.
  6. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
  7. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  8. Alpay, Savas, 2000. "Does Trade Always Harm the Global Environment? A Case for Positive Interaction," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 272-88, April.
  9. Carlo Perroni & Randall M. Wigle, 1994. "International Trade and Environmental Quality: How Important Are the Linkages?," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 551-67, August.
  10. Carol Lehr & John Maxwell, 2000. "Comparative Advantage, Trade, and Transboundary Pollution," Open Economies Review, Springer, vol. 11(3), pages 205-227, July.
  11. Judith M. Dean, 2002. "Does trade liberalization harm the environment? A new test," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 819-842, November.
  12. Copeland, Brian R., 2000. "Trade and environment: policy linkages," Environment and Development Economics, Cambridge University Press, vol. 5(04), pages 405-432, October.
  13. Cole, Matthew A. & Elliott, Robert J. R., 2003. "Determining the trade-environment composition effect: the role of capital, labor and environmental regulations," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 363-383, November.
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Cited by:
  1. Cunha, Barbara & Mani, Muthukumara, 2011. "DR-CAFTA and the environment," Policy Research Working Paper Series 5826, The World Bank.

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