Trade agreements, domestic environmental regulation, and transboundary pollution

This paper investigates a second-best trade agreement between two countries that takes the distortion arising from their non-coordinated environmental policies into consideration. In a reciprocal-markets model with bidirectional transboundary pollution, we find that if the transboundary pollution is...

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Bibliographic Details
Published in:Resource and energy economics 2008-05, Vol.30 (2), p.209-228
Main Authors: Lai, Yu-Bong, Hu, Chia-Hsien
Format: Article
Language:English
Subjects:
Applied sciences
Consumption externality
Economic models
Environmental policy
Environmental regulations
Environmental taxes
Exact sciences and technology
Global environmental pollution
Pollution
Studies
Tariffs
Trade agreement
Trade agreements
Transboundary pollution
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Summary:This paper investigates a second-best trade agreement between two countries that takes the distortion arising from their non-coordinated environmental policies into consideration. In a reciprocal-markets model with bidirectional transboundary pollution, we find that if the transboundary pollution is sufficiently strong, the second-best trade agreement requires that both countries subsidize the imported goods whose consumption gives rise to pollution. We also find that a bilateral tariff reduction is beneficial to the global environment.
ISSN:0928-7655
1873-0221
DOI:10.1016/j.reseneeco.2007.06.003