Managed Trade, Trade Liberalisation and Local Pollution

Pierre M Regibeau; Alberto Gallegos

doi:10.2202/1538-0637.1331

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Managed Trade, Trade Liberalisation and Local Pollution

Pierre M Regibeau and Alberto Gallegos

Published/Copyright: November 8, 2004

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From the journal Advances in Economic Analysis & Policy Volume 4 Issue 2

Abstract The current paper addresses the relationship between trade and endogenous pollution levels, with a focus different from the previous literature. The mechanism linking pollution and trade here is that trade policy 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 removes the government’s ability to credibly threaten lower levels of protection. In fact we show that any trade liberalization hurts the welfare of the home country. In terms of world welfare, moderate trade liberalization is helpful, but only as long as it does not affect the technology choices of the firms. Because committing to lower ‘bounded’ tariffs limits a government’s ability to enforce strict environmental standards, a country that has agreed to tighter tariff limits under the World Trade Organization would, other things equal, be a more likely “pollution haven” than a country with weaker WTO commitments.

Keywords: pollution; trade; environment

Published Online: 2004-11-8

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Articles in the same Issue

https://doi.org/10.2202/1538-0637.1331

Keywords for this article

pollution; trade; environment