Will Trade Liberalization Harm the Environment? The Case of Indonesia 2020

Centre for Economic Policy Research Discussion Paper Series No. 1933

Posted: 24 Sep 1998

See all articles by Anna Strutt

Anna Strutt

University of Waikato

Kym Anderson

University of Adelaide - Centre for International Economic Studies (CIES); Centre for Economic Policy Research (CEPR); Australian National University

Date Written: July 1998

Abstract

Most-favoured-nation (MFN) trade liberalizations will always improve global economic welfare provided globally optimal environmental, and other, policies are in place. But since the latter proviso is not met in practice, empirical studies of the environmental and resource depletion effects of such reforms are needed to convince sceptics that trade reform is still worthwhile. This paper provides a methodology for doing that. It is illustrated with a case study of Indonesia, a large newly industrializing country that is rich in natural resources and committed to taking part in major multilateral and regional trade liberalizations over the next two decades. A modified version of the global CGE model known as GTAP is used to project the world economy to 2010 and 2020 both with and without those reforms. An environmental module is attached to the Indonesian part of that global CGE model so as to measure the effects of changes in economic activity on air and water pollution. The proportional contributions to environmental indicators of changes in the level and composition of output, and changes in production techniques, are identified. A base case projection without trade reform is compared with alternative scenarios involving full global implementation of Uruguay Round commitments by 2010, and the additional move to MFN free trade by APEC countries by 2020. The study suggests that, at least with respect to air and water, trade policy reforms slated for the next two decades would in many cases improve the environment and reduce the depletion of natural resources and, in the worst cases, would add only slightly to environmental degradation even without toughening the enforcement of existing environmental regulations or adding new ones, and even if the reforms stimulate a faster rate of economic growth.

JEL Classification: F13, F14, F15, F17, O3, Q2, Q4

Suggested Citation

Strutt, Anna and Anderson, Kym, Will Trade Liberalization Harm the Environment? The Case of Indonesia 2020 (July 1998). Centre for Economic Policy Research Discussion Paper Series No. 1933, Available at SSRN: https://ssrn.com/abstract=128326

Anna Strutt

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Kym Anderson (Contact Author)

University of Adelaide - Centre for International Economic Studies (CIES) ( email )

School of Economics
Adelaide SA 5005
Australia
+61 8 8313 4712 (Phone)
+61 8 8223 1460 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University ( email )

Arndt-Corden Dept of Economics
Coombs Building
Canberra, AK ACT 2600
Australia
+61 8 8313 4712 (Phone)

HOME PAGE: http://publicpolicy.anu.edu.au/crawford_people/content/staff/acde/kanderson.php

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