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Trade Sanctions and Green Trade Liberalization

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  • Alireza Naghavi

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Abstract

This paper studies the impact of a WTO withdrawal of trade concessions against countries that fail to respect globally recognized environmental standards. We show that a punishing tariff can be effective when environmental and trade policies are endogenous. When required standards lie within a reasonable range, compliance along with free trade as a reward is the unique equilibrium outcome. A positive optimal tariff in the case of non-compliance prevents pollution-motivated delocation, but only works as a successful credible threat and does not emerge in equilibrium. Results are consistent with broad empirical evidence that disputes the pollution haven hypothesis and suggests capital movements to be non-pollution related.

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File URL: http://www.recent.unimore.it/wp/RECent-wp11.pdf
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Bibliographic Info

Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 011.

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Length: pages 21
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:mod:recent:011

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Web page: http://www.recent.unimore.it/
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Keywords: Environmental Policy; WTO; Delocation; Tariffs; Credible Threat;

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  1. Smarzynska Javorcik, Beata & Wei, Shang-Jin, 2001. "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?," CEPR Discussion Papers 2966, C.E.P.R. Discussion Papers.
  2. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
  3. James R. Markusen & Edward R. Morey & Nancy Olewiler, 1991. "Environmental Policy When Market Structure and Plant Locations are Endo-genous," NBER Working Papers 3671, National Bureau of Economic Research, Inc.
  4. Paola Conconi & Carlo Perroni & Ray Riezman, 2008. "Is partial tax harmonization desirable?," ULB Institutional Repository 2013/7010, ULB -- Universite Libre de Bruxelles.
  5. de Melo, Jaime & Grether, Jean-Marie, 2003. "Globalization and Dirty Industries: Do Pollution Havens Matter?," CEPR Discussion Papers 3932, C.E.P.R. Discussion Papers.
  6. J Peter Neary, 2003. "Europe on the Road to Doha - Towards a New Global Trade Round," Working Papers 200317, School Of Economics, University College Dublin.
  7. Hoel, Michael, 1997. " Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 241-59, June.
  8. Ulph, Alistair & Valentini, Laura, 2001. " Is Environmental Dumping Greater When Plants Are Footloose?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 673-88, December.
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