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Optimal Trade and Environmental Policies in a Polluted Small Open Economy


  • Alberto Gallegos

    (Tecnológico de Monterrey, Campus Ciudad de México)


Using a pollution-trade general equilibrium model I investigate the theoretical relationship between trade and environmental policies and their welfare effects in a perfectly competitive small open economy, facing trade and pollution distortions. Pollution does harm consumers but does not affect the productivity of neighboring firms and is generated as a by-product of the production process through the industrial use of a pure intermediate input. The final tradable good and the intermediate input are produced with a constant returns to scale technology where non-tradable primary factors of production are offered inelastically. In this framework there are three instruments considered: a tariff on a final good, a pollution tax and a tariff on the imports of the pollution-creating intermediate input.

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  • Alberto Gallegos, 2006. "Optimal Trade and Environmental Policies in a Polluted Small Open Economy," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 203-231.
  • Handle: RePEc:emx:esteco:v:21:y:2006:i:2:p:203-231

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    More about this item


    optimal policies; intermediate pollutant input; welfare; small open economy;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment


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