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Environmental and Trade Policies: Some Methodological Lessons

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  • Smith, V. Kerry
  • Espinosa, Andres

Abstract

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.

Suggested Citation

  • Smith, V. Kerry & Espinosa, Andres, 1996. "Environmental and Trade Policies: Some Methodological Lessons," Discussion Papers dp-96-18, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-96-18
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    References listed on IDEAS

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    1. James E. Anderson & J. Peter Neary, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 107-125.
    2. Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1991. "An Empirical Database for a General Equilibrium Model of the European Communities," Empirical Economics, Springer, pages 95-120.
    3. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-874, September.
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    5. 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.
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    7. 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 1233-1242, December.
    8. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
    9. 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.
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    12. 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.
    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. 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.
    15. 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.
    16. Lopez, Ramon & Niklitschek, Mario, 1991. "Dual economic growth in poor tropical areas," Journal of Development Economics, Elsevier, vol. 36(2), pages 189-211, October.
    17. Edward Barbier & Michael Rauscher, 1994. "Trade, tropical deforestation and policy interventions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(1), pages 75-90, February.
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    Cited by:

    1. Calmette, Marie-Francoise & Pechoux, Isabelle, 2007. "Are environmental policies counterproductive?," Economics Letters, Elsevier, vol. 95(2), pages 186-191, May.
    2. Theodore Panayotou, 2000. "Globalization and Environment," CID Working Papers 53, Center for International Development at Harvard University.
    3. Smith, V. Kerry, 1996. "Environmental costing: Experience and prospects," Resource and Energy Economics, Elsevier, vol. 18(4), pages 333-345, December.
    4. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, 2000. "Estimating the General Equilibrium Benefits of Large Policy Changes: The Clean Air Act Revisited," NBER Working Papers 7744, National Bureau of Economic Research, Inc.
    5. Theodore Panayotou, 2000. "Globalization and Environment," CID Working Papers 53A, Center for International Development at Harvard University.
    6. Larson, Bruce A. & Nicolaides, Eri & Al Zu'bi, Bashir & Sukkar, Nabil & Laraki, Karim & Matoussi, Mohamed Salah & Zaim, Katalin & Chouchani, Carol, 2002. "The Impact of Environmental Regulations on Exports: Case Study Results from Cyprus, Jordan, Morocco, Syria, Tunisia, and Turkey," World Development, Elsevier, vol. 30(6), pages 1057-1072, June.
    7. Smith, V. Kerry & Van Houtven, George & Pattanayak, Subhrendu, 1999. "Benefit Transfer as Preference Calibration," Discussion Papers dp-99-36, Resources For the Future.
    8. Huang, Ju-Chin & Kerry Smith, V., 1998. "Weak complementarity and production," Economics Letters, Elsevier, vol. 60(3), pages 329-333, September.
    9. Isabelle Morin & Jared Creason & Michael Fisher & Susan F. Stone, 2005. "Comparison of the Environmental Impacts of Trade and Domestic Distortions in the United States," NCEE Working Paper Series 200506, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2005.
    10. Smith, V. Kerry & Mansfield, Carol & Schwabe, Kurt, 1997. "Does Nature Limit Environmental Federalism?," Discussion Papers dp-97-30, Resources For the Future.
    11. Larson, Bruce A., 2002. "European Union Environmental Policies And Imports Of Agricultural Products From The United States," 2002 Annual meeting, July 28-31, Long Beach, CA 19613, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Haixiao Huang, Walter C. Labys, 2002. "Environment and trade: a review of issues and methods," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 2(1/2), pages 100-160.
    13. Smith, V. Kerry & Mansfield, Carol & Schwabe, Kurt, 1997. "Does Nature Limit Environmental Federalism?," Discussion Papers dp-97-30, Resources For the Future.

    More about this item

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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