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Induced Institutional Change in the Trade and Environment Debate

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  • Heinz Jansen

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Abstract

Because of the assumption of constant emission factors, economy-environment models often show that free trade has negative environmental consequences. However, this pessimistic view ignores the possibility of trade strengthening the demand for regulatory institutions. An `institutional optimism hypothesis’, stating that the net environmental result of trade liberalization is benign, is thus formulated in this paper. The hypothesis is examined with a CGE model that treats institutional change as an endogenous process dependent on income. Application to NAFTA, using a broad range of scenarios, provides some support for the institutional optimism hypothesis. The net pollution effect of trade liberalization is in many cases beneficial or low, even for the country specializing in polluting industries. The implication is that in many cases environmental interests are served better by a focus on institution building in trading partners, than on the process of trade liberalization itself. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Heinz Jansen, 2001. "Induced Institutional Change in the Trade and Environment Debate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(2), pages 149-172, February.
  • Handle: RePEc:kap:enreec:v:18:y:2001:i:2:p:149-172
    DOI: 10.1023/A:1011141425958
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    References listed on IDEAS

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    Cited by:

    1. Annegrete Bruvoll & Taran Fæhn & Birger Str¯m, 2003. "Quantifying Central Hypotheses on Environmental Kuznets Curves for a Rich Economy: A Computable General Equilibrium Study," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(2), pages 149-173, May.
    2. Bruvoll, Annegrete & Faehn, Taran, 2006. "Transboundary effects of environmental policy: Markets and emission leakages," Ecological Economics, Elsevier, vol. 59(4), pages 499-510, October.
    3. Annegrete Bruvoll & Taran Fæhn, 2004. "Transboundary environmental policy effects: Markets and emission leakages," Discussion Papers 384, Statistics Norway, Research Department.

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    Keywords

    CGE models; environment; institutions; NAFTA; trade;

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