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The long-run effects of environmental reform in open economies

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Author Info

  • Karp, Larry S.

    ()
    (University of California, Berkeley. Dept of agricultural and resource economics and policy)

  • Zhao, Jinhua
  • Sacheti, Sandeep

Abstract

We compare the short-run and long-run effects of environmental reform and harmonization under autarky and free trade. When trade is driven by environmental distortions rather than real relative advantages, harmonization of environmental policies, even if achieved by lowering standards in one country, can improve short-run aggregate welfare. With the possibility of multiple steady states, long-run considerations favor a \race to the top" rather than a \race to the bottom" even when upward and downward harmonizations are equivalent in the short run. For a country trapped in a low (or bad) steady state, environmental reform may not move it to a high (or good) steady state under autarky. However, under trade, harmonization of policies may enable this country to reach the high steady state. Conversely, reforms that increase the relative differences in distortions may, under trade, cause economies to move toalow steady state.

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Bibliographic Info

Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 818.

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Length: 39 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:are:cudare:818

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Related research

Keywords: environment; environmental policy; equilibrium (economics); international trade;

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References

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  1. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-37, September.
  2. Michael Hoel, 1993. "Harmonization of carbon taxes in international climate agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(3), pages 221-231, June.
  3. James A. Brander & M. Scott Taylor, 1996. "Open Access Renewable Resources: Trade and Trade Policy in a Two-CountryModel," NBER Working Papers 5474, National Bureau of Economic Research, Inc.
  4. Eswaran, Mukesh & Kotwal, Ashok, 1993. "A theory of real wage growth in LDCs," Journal of Development Economics, Elsevier, vol. 42(2), pages 243-269, December.
  5. James A. Brander & M. Scott Taylor, 1995. "International Trade and Open Access Renewable Resources: The Small Open Economy Case," NBER Working Papers 5021, National Bureau of Economic Research, Inc.
  6. Karp, Larry & Sacheti, Sandeep, 1997. "Common Ground Between Free-traders and Environmentalists," CEPR Discussion Papers 1598, C.E.P.R. Discussion Papers.
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Cited by:
  1. Karp, Larry, 2003. "Property rights, mobile capital, and comparative advantage," CUDARE Working Paper Series 942, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.

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