Managed Trade, Trade Liberalization and Local Pollution
AbstractThe current Paper addresses the relationship between trade and endogenous pollution levels. The main focus is quite different from the previous literature. The mechanism linking pollution and trade is that trade provides the home government with a credible threat that helps motivate domestic firms to adopt cleaner technologies. This credible threat comes from the fact that the government has a greater incentive to protect a clean industry than to protect a very polluting one. In that sense, the existence of trade helps reduce domestic pollution compared to what would prevail in a situation of autarky. On the other hand, a commitment to free trade would be counterproductive: it limits the government ‘s ability to credibly threaten its domestic firms. In fact we show that any trade liberalisation hurts the welfare of the home country. In terms of world welfare, moderate trade liberalisation is helpful but only as long as it does not affect the technology choices of the firms.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4491.
Date of creation: Jul 2004
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Other versions of this item:
- Regibeau Pierre M & Gallegos Alberto, 2004. "Managed Trade, Trade Liberalisation and Local Pollution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-26, November.
- Alberto Gallegos & Pierre Regibeau, 2004. "Managed Trade, Trade Liberalisation and Local Pollution," Economics Discussion Papers 580, University of Essex, Department of Economics.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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