Pollution Abatement and International Self-Sufficiency
Dorfman (1973) anticipates increases in international trade when pollution abatement reduces damage to polluted industries. We simulate the effect of abatement with a Heckscher-Ohlin-Samuelson model of a production on production externality. Both countries are Pigouvian and two levels of abatement effectiveness are endogenized. Although more effective pollution abatement increases total world production of both goods, trade decreases as a proportion of total world production. Our results with possibly greater pollution abatement by larger countries are useful in explaining Rose's (1991) findings that post-1973 increases in real output for large countries are associated with declines in international trade.
Volume (Year): 26 (2000)
Issue (Month): 2 (Spring)
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