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Managed Trade, Trade liberalisation and Local Pollution

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  • Gallegos, Alberto
  • Régibeau, Pierre

Abstract

The current paper addresses the relationship between trade and endogenous pollution levels. The main focus is quite different from the previous literature. The mechanism linking pollution and trade is that trade 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 limits the government ‘s ability to credibly threaten its domestic firms. In fact we show that any trade liberalisation hurts the welfare of the home country. In terms of world welfare, moderate trade liberalisation is helpful but only as long as it does no affect the technology choices of the firms.

Suggested Citation

  • Gallegos, Alberto & Régibeau, Pierre, 2004. "Managed Trade, Trade liberalisation and Local Pollution," Economics Discussion Papers 8877, University of Essex, Department of Economics.
  • Handle: RePEc:esx:essedp:8877
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    File URL: http://repository.essex.ac.uk/8877/
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    References listed on IDEAS

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    1. Karp, Larry & Sacheti, Sandeep & Zhao, Jinhua, 2001. "Common Ground between Free-Traders and Environmentalists," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 617-647, August.
    2. M. Scott Taylor & Brian R. Copeland, "undated". "International Trade and the Environment: A Framework for Analysis," Working Papers 2014-71, Department of Economics, University of Calgary, revised 29 Sep 2014.
    3. Matsuyama, Kiminori, 1990. "Perfect Equilibria in a Trade Liberalization Game," American Economic Review, American Economic Association, vol. 80(3), pages 480-492, June.
    4. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    5. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
    6. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    7. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
    8. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
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    Cited by:

    1. Takeshi Iida & Kenji Takeuchi, 2010. "Policy-Induced Environmental Technology Transfer," Discussion Papers 1008, Graduate School of Economics, Kobe University.

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