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Managed Trade, Trade liberalisation and Local Pollution

Gallegos, Alberto and Régibeau, Pierre (2004) Managed Trade, Trade liberalisation and Local Pollution. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.

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Abstract

The current paper addresses the relationship between trade and endogenous pollution levels. The main focus is quite different from the previous literature. The mechanism linking pollution and trade is that trade provides the home government with a credible threat that helps motivate domestic firms to adopt cleaner technologies. This credible threat comes from the fact that the government has a greater incentive to protect a clean industry than to protect a very polluting one. In that sense, the existence of trade helps reduce domestic pollution compared to what would prevail in a situation of autarky. On the other hand, a commitment to free trade would be counterproductive: it limits the government ‘s ability to credibly threaten its domestic firms. In fact we show that any trade liberalisation hurts the welfare of the home country. In terms of world welfare, moderate trade liberalisation is helpful but only as long as it does no affect the technology choices of the firms.

Item Type: Monograph (Working Paper)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 28 Aug 2014 13:54
Last Modified: 28 Aug 2014 13:54
URI: http://repository.essex.ac.uk/id/eprint/8877

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