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Transboundary Pollution, R&D Spillovers and International Trade

  • Slim Ben Youssef

    (Université de Tunis El Manar, Tunisia)

We consider a symmetric three-stage game played by a pair of regulator-firm hierarchies to capture the scale and technology effects. Each firm produces one good sold on the market. The production process generates pollution characterized by a fixed emission/output ratio, and cross-borders. Firms can invest in R&D in order to lower their emission/output ratio, and this activity is characterized by positive R&D spillovers. We show that R&D spillovers and the competition of firms on the common market help non-cooperating countries to internalize transboundary pollution more efficiently. Consequently, in most cases, when the positive externality increases, the levels of R&D and production increase while pollution decreases, implying an increase of the social welfare. However, in some other cases, pollution under common market increases with the R&D externality implying a decrease of the social welfare. Opening markets to the international trade leads to more investment in R&D and more production. In most cases, pollution under common market is lower than under autarky, implying a greater social welfare. Nevertheless, in some other cases, pollution under common market is higher than under autarky implying that opening markets deteriorates social welfare.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.39.

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Date of creation: Apr 2003
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Handle: RePEc:fem:femwpa:2003.39
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  1. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  2. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  3. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers 6707, National Bureau of Economic Research, Inc.
  4. Cremer, Helmuth & Gahvari, Firouz, 2004. "Environmental taxation, tax competition, and harmonization," Journal of Urban Economics, Elsevier, vol. 55(1), pages 21-45, January.
  5. Kjetil Bjorvatn & Guttorm Schjelderup, 2002. "Tax Competition and International Public Goods," International Tax and Public Finance, Springer, vol. 9(2), pages 111-120, March.
  6. Santore, Rudy & Robison, H. David & Klein, Yehuda, 2001. "Strategic state-level environmental policy with asymmetric pollution spillovers," Journal of Public Economics, Elsevier, vol. 80(2), pages 199-224, May.
  7. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-37, September.
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