The Globalization of Market Failure? International Trade and Sustainable Agriculture
The economic case for trade liberalization rests on its capacity to extend the reach of the market's fabled invisible hand. With the globalization of the market, however, comes a globalization of market failures arising from the fact that prices do not to capture 'external' costs and benefits to third parties. Whether the social gains from trade liberalization will exceed the social losses from the attendant market failures is an empirical question, one which cannot be answered by theoretical fables. This essay considers the impact of two types of trade-driven market failures on sustainable agriculture. The first is the displacement of natural fibres by synthetic substitutes, illustrated by the competition between jute and polypropylene. The second is the erosion of crop genetic diversity, illustrated by the impact of NAFTA on campesino maize farming in Mexico. In both cases, ‘free trade’ pits pits environmentally ‘clean’ production in the global South against ‘dirty’ production in the North - the opposite of the what is often assumed in discussions of the environmental impacts of North-South trade.
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NBER Working Papers
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