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Managed Trade, Trade Liberalisation and Local Pollution

Author

Listed:
  • Regibeau Pierre M

    () (University of Essex)

  • Gallegos Alberto

    () (ITESM Mexico City)

Abstract

Abstract The current paper addresses the relationship between trade and endogenous pollution levels, with a focus different from the previous literature. The mechanism linking pollution and trade here is that trade policy 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 removes the governments ability to credibly threaten lower levels of protection. In fact we show that any trade liberalization hurts the welfare of the home country. In terms of world welfare, moderate trade liberalization is helpful, but only as long as it does not affect the technology choices of the firms. Because committing to lower bounded tariffs limits a governments ability to enforce strict environmental standards, a country that has agreed to tighter tariff limits under the World Trade Organization would, other things equal, be a more likely pollution haven than a country with weaker WTO commitments.

Suggested Citation

  • Regibeau Pierre M & Gallegos Alberto, 2004. "Managed Trade, Trade Liberalisation and Local Pollution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-26, November.
  • Handle: RePEc:bpj:bejeap:v:advances.4:y:2004:i:2:n:5
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    Cited by:

    1. 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.
    2. Rodney D. Ludema & Taizo Takeno, 2007. "Tariffs and the adoption of clean technology under asymmetric information," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1100-1117, November.
    3. Takeshi Iida & Kenji Takeuchi, 2010. "Policy-Induced Environmental Technology Transfer," Discussion Papers 1008, Graduate School of Economics, Kobe University.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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