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Managed Trade, Trade Liberalization and Local Pollution

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  • Gallegos, Alberto
  • Régibeau, Pierre

Abstract

The 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 Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4491.

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Date of creation: Jul 2004
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Handle: RePEc:cpr:ceprdp:4491

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Keywords: environment; pollution; trade policy;

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References

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  1. Karp, Larry & Sacheti, Sandeep & Zhao, Jinhua, 1999. "Common ground between free-traders and environmentalists," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7jw3t8pw, Department of Agricultural & Resource Economics, UC Berkeley.
  2. 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.
  3. 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.
  4. Brian R. Copeland & M. Scott Taylor, 2001. "International Trade and the Environment: A Framework for Analysis," NBER Working Papers 8540, National Bureau of Economic Research, Inc.
  5. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
  6. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
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Cited by:
  1. Rodney Ludema & Taizo Takeno, 2006. "Tariffs and the Adoption of Clean Technology Under Asymmetric Information," Working Papers gueconwpa~06-06-09, Georgetown University, Department of Economics.
  2. Silva, Emilson C.D. & Zhu, Xie, 2009. "Emissions trading of global and local pollutants, pollution havens and free riding," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 169-182, September.
  3. Takeshi Iida & Kenji Takeuchi, 2010. "Policy-Induced Environmental Technology Transfer," Discussion Papers 1008, Graduate School of Economics, Kobe University.

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