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Trade and environmental distortions: coordinated intervention

Published online by Cambridge University Press:  03 November 2000

JINHUA ZHAO
JINHUA ZHAO
Affiliation:
Department of Economics, Iowa State University, Ames, IA 50011, USA. Tel: 515–294–5857. Fax: 515–294–0221. Email: [email protected]
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Abstract

Free trade may not improve welfare when environmental distortions exist. We study the coordination of trade and environmental policies when the distortion is loose property rights governing resources. Using the dual approach of Dixit and Norman (1980), we trade out ‘iso-welfare’ curves in the space of the degree of environment distortion and the level of the import tariff. We use these curves to find necessary and sufficient conditions for disproportionate reforms, piecemeal or discrete, to be welfare improving. We also find that the needed reduction in the distortion to make trade welfare improving increases as the environmental stock increases, the productivity of the environmentally intensive good increases, or when the country is a large exporter of the environmentally intensive good.

Type
Research Article
Information
Environment and Development Economics , Volume 5 , Issue 4 , October 2000 , pp. 361 - 375
Copyright
© 2000 Cambridge University Press

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Footnotes

I acknowledge the Global Environment and Trade Study and the MacArthur Foundation for (partial) financial assistance. I would like to thank Scott Barrett and two anonymous referees for helpful comments. The usual disclaimer applies.