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A Simple Model of Trade, Capital Mobility, and the Environment

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  • Brian R. Copeland
  • M. Scott Taylor

Abstract

This paper examines the interaction between relative factor abundance and income-induced policy differences in determining the pattern of trade and the effect of trade liberalization on pollution. If a rich and capital abundant North trades with a poor and labor abundant South, then free trade lowers world pollution. Trade shifts the production of pollution intensive industries to the capital abundant North despite its stricter pollution regulations. Pollution levels rise in the North while those in the South fall. These results can be reversed however if the North-South income gap is "too large," in this case, the pattern of trade is driven by income-induced pollution policy differences across countries. Capital mobility may raise or lower world pollution depending on the pattern of trade.

Suggested Citation

  • Brian R. Copeland & M. Scott Taylor, 1997. "A Simple Model of Trade, Capital Mobility, and the Environment," NBER Working Papers 5898, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5898
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    References listed on IDEAS

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    1. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-737, September.
    2. Daly, Herman & Goodland, Robert, 1994. "An ecological-economic assessment of deregulation of international commerce under GATT," Ecological Economics, Elsevier, vol. 9(1), pages 73-92, January.
    3. Brian R. Copeland & M. Scott Taylor, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 755-787.
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