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Liberalizing Trade in Environmental Goods

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  • Bouwe R. Dijkstra
  • Anuj J. Mathew

Abstract

Trade liberalization in environmental goods is high on the agenda of the current Doha round. We examine its effects in a model with one domestic downstream polluting firm and two upstream firms (one domestic, one foreign). The domestic government sets the emission tax rate after the outcome of R&D is known. The upstream firms offer their technologies to the downstream firm at a flat fee. The effect of liberalization on the domestic upstream firm's R&D incentive is ambiguous. Liberalization usually results in cleaner production, which allows the country to reach higher welfare. However this increase in welfare is typically achieved at the expense of the environment (a backfire effect). Thus our results cast doubt on the hoped-for "win-win-win" outcome of trade liberalization in environmental goods.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 10/05.

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Handle: RePEc:not:notgep:10/05

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Keywords: Pollution abatement technology; R&D; trade and environment; trade liberalization; backfire effect;

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Cited by:
  1. Wei, Wenjie, 2014. "Welfare and Environmental Effects of Subsidies and Tariffs in North-South Trade in Renewable Energy Equipment," 2014 Conference (58th), February 4-7, 2014, Port Maquarie, Australia 165887, Australian Agricultural and Resource Economics Society.
  2. Nicole A. MATHYS & Jaime de MELO, 2010. "Trade and Climate Change: The Challenges Ahead," Working Papers P14, FERDI.
  3. Alain-Désiré Nimubona, 2010. "Pollution Policy and Liberalization of Trade in Environmental Goods," Working Papers 1004, University of Waterloo, Department of Economics, revised May 2010.
  4. Mona Haddad & Ben Shepherd, 2011. "Managing Openness : Trade and Outward-oriented Growth After the Crisis," World Bank Publications, The World Bank, number 2283, October.

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