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Environmental and Trade Policies: Some MethodologicalLessons

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  • Smith, Kerry
  • J. Andres Espinosa

Abstract

This paper describes the results of using a new computable general equilibrium model for the European Union that incorporates local and transboundary externalities to evaluate the effects of trade policy reform. In contrast to all past theoretical and empirical research, this model includes the morbidity effects of three criteria air pollutants as nonseparable arguments of household preferences. The model is based on the Harrison-Rutherford Wooton model that identifies 11 regions, six aggregate commodities and three factor inputs. Three modifications were made to the model: (a) Stone Geary utility functions were used to characterize preferences for each consumer; (b) nine morbidity effects due to the three air pollutants were introduced as translating effects; and (c) pollution generation and dispersion models were introduced and calibrated to the model's base solution. General equilibrium welfare effects are evaluated with a balance of trade function. Overall, the evaluations of policy suggest that incorporating environmental effects as non-separable influences on preferences can have a marked impact on the evaluation of trade policy reforms.

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Bibliographic Info

Paper provided by Duke University, Department of Economics in its series Working Papers with number 95-47.

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Date of creation: 1995
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Publication status: Published in ENVIRONMENT AND DEVELOPMENT ECONOMICS, Vol. 1, 1996, pages 19-40
Handle: RePEc:duk:dukeec:95-47

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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/

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References

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  1. Ballard, Charles L. & Medema, Steven G., 1993. "The marginal efficiency effects of taxes and subsidies in the presence of externalities : A computational general equilibrium approach," Journal of Public Economics, Elsevier, vol. 52(2), pages 199-216, September.
  2. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  3. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
  4. Edward Barbier & Michael Rauscher, 1994. "Trade, tropical deforestation and policy interventions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(1), pages 75-90, February.
  5. Copeland Brian R., 1994. "International Trade and the Environment: Policy Reform in a Polluted Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 44-65, January.
  6. Boyd Roy & Krutilla Kerry & Viscusi W. Kip, 1995. "Energy Taxation as a Policy Instrument to Reduce CO2 Emissions: A Net Benefit Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 1-24, July.
  7. Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-51, November.
  8. Anderson, James E & Neary, J Peter, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 107-25, January.
  9. Lopez, Ramon & Niklitschek, Mario, 1991. "Dual economic growth in poor tropical areas," Journal of Development Economics, Elsevier, vol. 36(2), pages 189-211, October.
  10. Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1991. "An Empirical Database for a General Equilibrium Model of the European Communities," Empirical Economics, Springer, vol. 16(1), pages 95-120.
  11. Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1989. "The Economic Impact of the European Community," American Economic Review, American Economic Association, vol. 79(2), pages 288-94, May.
  12. Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
  13. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  15. Oates, Wallace E & Portney, Paul R & McGartland, Albert M, 1989. "The Net Benefits of Incentive-Based Regulation: A Case Study of Environmental Standard Setting," American Economic Review, American Economic Association, vol. 79(5), pages 1233-42, December.
  16. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
  17. Lluch, Constantino & Powell, Alan, 1975. "International comparisons of expenditure patterns," European Economic Review, Elsevier, vol. 6(3), pages 275-303, July.
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Citations

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Cited by:
  1. Calmette, Marie-Françoise & Pechoux, Isabelle, 2004. "Are Environmental Policies Counterproductive?," IDEI Working Papers 329, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Jared Creason & Michael Fisher & Isabelle Morin & and Susan F. Stone, 2005. "Comparison of the Environmental Impacts of Trade and Domestic Distortions in the United States," NCEE Working Paper Series 200506, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2005.
  3. Heinz Jansen, 2001. "Induced Institutional Change in the Trade and Environment Debate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(2), pages 149-172, February.
  4. Smith, V. Kerry & Mansfield, Carol & Schwabe, Kurt, 1997. "Does Nature Limit Environmental Federalism?," Discussion Papers dp-97-30, Resources For the Future.
  5. Smith, V. Kerry & Van Houtven, George & Pattanayak, Subhrendu, 1999. "Benefit Transfer as Preference Calibration," Discussion Papers dp-99-36, Resources For the Future.
  6. Larson, Bruce A. & Nicolaides, Eri & Al Zu'bi, Bashir & Sukkar, Nabil & Laraki, Karim & Matoussi, Mohamed Salah & Zaim, Katalin & Chouchani, Carol, 2002. "The Impact of Environmental Regulations on Exports: Case Study Results from Cyprus, Jordan, Morocco, Syria, Tunisia, and Turkey," World Development, Elsevier, vol. 30(6), pages 1057-1072, June.
  7. Larson, Bruce A., 2002. "European Union Environmental Policies And Imports Of Agricultural Products From The United States," 2002 Annual meeting, July 28-31, Long Beach, CA 19613, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, 2000. "Estimating the General Equilibrium Benefits of Large Policy Changes: The Clean Air Act Revisited," NBER Working Papers 7744, National Bureau of Economic Research, Inc.
  9. Huang, Ju-Chin & Kerry Smith, V., 1998. "Weak complementarity and production," Economics Letters, Elsevier, vol. 60(3), pages 329-333, September.
  10. Theodore Panayotou, 2000. "Globalization and Environment," CID Working Papers 53, Center for International Development at Harvard University.

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