Liberalizing Trade in Environmental Goods

University of Nottingham Research Paper 2010/05

38 Pages Posted: 28 Mar 2010

See all articles by Bouwe Dijkstra

Bouwe Dijkstra

University of Nottingham - School of Economics

Anuj J. Mathew

affiliation not provided to SSRN

Date Written: March 24, 2010

Abstract

Trade liberalization in environmental goods is high on the agenda of the current Doha round. We examine its effects in a model with one domestic downstream polluting firm and two upstream firms (one domestic, one foreign). The domestic government sets the emission tax rate after the outcome of R&D is known. The upstream firms offer their technologies to the downstream firm at a flat fee. The effect of liberalization on the domestic upstream firm's R&D incentive is ambiguous. Liberalization usually results in cleaner production, which allows the country to reach higher welfare. However this increase in welfare is typically achieved at the expense of the environment (a backfire effect). Thus our results cast doubt on the hoped-for "win-win-win" outcome of trade liberalization in environmental goods.

Keywords: Pollution abatement technology, R&D, trade and environment, trade liberalization, backfire effect

JEL Classification: F12, F18, L24, O32, Q55, Q58

Suggested Citation

Dijkstra, Bouwe and Mathew, Anuj J., Liberalizing Trade in Environmental Goods (March 24, 2010). University of Nottingham Research Paper 2010/05. Available at SSRN: https://ssrn.com/abstract=1577594 or http://dx.doi.org/10.2139/ssrn.1577594

Bouwe Dijkstra (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 8467205 (Phone)
+44 115 9514159 (Fax)

Anuj J. Mathew

affiliation not provided to SSRN

No Address Available

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