This paper examines the relationship between trade in intermediate products, pollution and increasing returns. We develop a simple model with two countries and two stages of production, final and intermediate good production, where the production technology in both stages exhibits some form of increasing returns. Pollution occurs at the level of final good production. We analyze the effects of international trade in intermediate products on pollution, output and welfare. In particular, we show that in presence of increasing returns international trade can increase output and real income without raising pollution.
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Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number
99-01.
Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F14 - International Economics - - Trade - - - Country and Industry Studies of Trade Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy