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Biofuel subsidies and international trade

  • Bandyopadhyay, Subhayu
  • Bhaumik, Sumon
  • Wall, Howard J.

This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41491.

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Date of creation: Oct 2010
Date of revision: 21 Sep 2012
Handle: RePEc:pra:mprapa:41491
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  1. Marjit, Sugata & Kar, Saibal & Beladi, Hamid, 2007. "Protectionary bias in agriculture: A pure economic argument," Ecological Economics, Elsevier, vol. 63(1), pages 160-164, June.
  2. Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
  3. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc.
  4. Jeffrey A. Frankel & Andrew K. Rose, 2005. "Is Trade Good or Bad for the Environment? Sorting Out the Causality," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 85-91, February.
  5. Vedenov, Dmitry & Wetzstein, Michael, 2008. "Toward an optimal U.S. ethanol fuel subsidy," Energy Economics, Elsevier, vol. 30(5), pages 2073-2090, September.
  6. Oecd, 2006. "Agricultural Market Impacts of Future Growth in the Production of Biofuels," OECD Papers, OECD Publishing, vol. 6(1), pages 1-57.
  7. Farzad Taheripour, 2008. "Welfare Effects and Unintended Consequences of Ethanol Subsidies ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 411-421.
  8. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, number 9780198290506, July.
  9. repec:oup:qjecon:v:109:y:1994:i:3:p:755-87 is not listed on IDEAS
  10. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
  11. 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.
  12. Harry de Gorter & David R. Just, 2010. "The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 4-32.
  13. Lapan, Harvey E. & Moschini, GianCarlo, 2009. "Biofuels Policies and Welfare: Is the Stick of Mandates Better Than the Carrot of Subsidies?," Staff General Research Papers 13076, Iowa State University, Department of Economics.
  14. Jen Baggs, 2009. "International Trade in Hazardous Waste," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 1-16, 02.
  15. Brian R. Copeland & M. Scott Taylor, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 755-787.
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