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Green Technology Transfers and Border Tax Adjustments

Author

Listed:
  • Alain-Désiré Nimubona
  • Horatiu Rus

    (Department of Economics, University of Waterloo)

Abstract

We develop a two-country general equilibrium model of foreign assistance tied to environmental clean-up in the presence of transboundary pollution. The recipient country generates pollution as a by-product in the production of a ‘dirty’ good, which it consumes as well as exports to the donor country. In contrast to the literature which typically treats aid as a monetary transfer, we assume that foreign aid consists in a transfer of environmental technology that lowers the cost of public clean-up in the recipient country. We highlight the fact that the marginal propensities to consume the polluting good in the donor and recipient countries are driving the terms of trade effect at work in our model. The environmental and welfare outcomes are influenced by the direct, terms of trade and abatement effects of the transfer. We show that such tied aid may be Pareto improving if the clean-up effect of the foreign aid is strong enough to compensate for the donor’s monetary and terms of trade losses. We finally analyze the effects of the green transfer combined with an appropriate border tax adjustment. Contrary to intuition, we find that green technology transfers and border tax adjustments are not complements.

Suggested Citation

  • Alain-Désiré Nimubona & Horatiu Rus, 2011. "Green Technology Transfers and Border Tax Adjustments," Working Papers 1102, University of Waterloo, Department of Economics, revised May 2011.
  • Handle: RePEc:wat:wpaper:1102
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    References listed on IDEAS

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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