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Environmental and Trade Policies: Some Methodological Lessons

  • Smith, V. Kerry
  • Espinosa, Andres

This paper describes the results of using a new computable general equilibrium model for the European Union that incorporates local and transboundary externalities to evaluate the effects of trade policy reform. In contrast to all past theoretical and empirical research, this model includes the morbidity effects of three criteria air pollutants as nonseparable arguments of household preferences. The model is based on the Harrison-Rutherford Wooton model that identifies 11 regions, six aggregate commodities and three factor inputs. Three modifications were made to the model: (a) Stone Geary utility functions were used to characterize preferences for each consumer; (b) nine morbidity effects due to the three air pollutants were introduced as translating effects; and (c) pollution generation and dispersion models were introduced and calibrated to the model's base solution. General equilibrium welfare effects are evaluated with a balance of trade function. Overall, the evaluations of policy suggest that incorporating environmental effects as non-separable influences on preferences can have a marked impact on the evaluation of trade policy reforms.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-96-18.

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Date of creation: 01 Jun 1996
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Handle: RePEc:rff:dpaper:dp-96-18
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  1. Anderson, James E. & Neary, J. Peter, 1992. "A new approach to evaluating trade policy," Policy Research Working Paper Series 1022, The World Bank.
  2. Lopez, Ramon & Niklitschek, Mario, 1991. "Dual economic growth in poor tropical areas," Journal of Development Economics, Elsevier, vol. 36(2), pages 189-211, October.
  3. Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-51, November.
  4. 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.
  5. Boyd Roy & Krutilla Kerry & Viscusi W. Kip, 1995. "Energy Taxation as a Policy Instrument to Reduce CO2 Emissions: A Net Benefit Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 1-24, July.
  6. Lluch, Constantino & Powell, Alan, 1975. "International comparisons of expenditure patterns," European Economic Review, Elsevier, vol. 6(3), pages 275-303, July.
  7. Copeland Brian R., 1994. "International Trade and the Environment: Policy Reform in a Polluted Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 44-65, January.
  8. Oates, Wallace E & Portney, Paul R & McGartland, Albert M, 1989. "The Net Benefits of Incentive-Based Regulation: A Case Study of Environmental Standard Setting," American Economic Review, American Economic Association, vol. 79(5), pages 1233-42, December.
  9. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  10. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  11. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
  12. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  13. Ballard, Charles L. & Medema, Steven G., 1993. "The marginal efficiency effects of taxes and subsidies in the presence of externalities : A computational general equilibrium approach," Journal of Public Economics, Elsevier, vol. 52(2), pages 199-216, September.
  14. Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1991. "An Empirical Database for a General Equilibrium Model of the European Communities," Empirical Economics, Springer, vol. 16(1), pages 95-120.
  15. J. Andrès Espinosa & V. Kerry Smith, 1995. "Measuring the Environmental Consequences of Trade Policy: A Nonmarket CGE Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 772-777.
  16. Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1989. "The Economic Impact of the European Community," American Economic Review, American Economic Association, vol. 79(2), pages 288-94, May.
  17. Edward Barbier & Michael Rauscher, 1994. "Trade, tropical deforestation and policy interventions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(1), pages 75-90, February.
  18. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
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