Trade and Environment: Bargaining Outcomes from Linked Negotiations

CSGR Working Paper No. 27/99

30 Pages Posted: 19 Sep 1999

See all articles by Lisandro Abrego

Lisandro Abrego

International Monetary Fund (IMF)

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Randall Wigle

Wilfrid Laurier University - School of Business & Economics; Balsillie School of International Affairs

Multiple version iconThere are 2 versions of this paper

Date Written: April 1999

Abstract

Recent literature has explored both physical and policy linkage between trade and environment. Here we explore linkage through leverage in bargaining, whereby developed countries can use trade policy threats to achieve improved developing country environmental management, while developing countries can use environmental concessions to achieve trade disciplines in developed countries. We use a global numerical simulation model to compute bargaining outcomes from linked trade and environment negotiations, comparing developed-developing country bargaining only on trade policy with joint bargaining on both trade and domestic environmental policies. Results indicate joint gains from expanding the trade bargaining set to include environment, opposite to the current developing country reluctance to negotiate in the World Trade Organization on this issue. However, compared to bargaining with cash side payments, linking trade and environment through negotiation on policy instruments provides significantly inferior developing country outcomes. Thus, a trade and environment policy linked negotiation may be better than a trade-only negotiation for developing countries, but compensation for environmental restraint would be even better for them. We provide sensitivity and further analysis of our results and indicate what other factors could qualify our main finding, including the erosion of the MFN principle involved with environmentally based trade actions.

JEL Classification: F13, F17, O13, Q28, Q38

Suggested Citation

Abrego, Lisandro and Perroni, Carlo and Wigle, Randall, Trade and Environment: Bargaining Outcomes from Linked Negotiations (April 1999). CSGR Working Paper No. 27/99. Available at SSRN: https://ssrn.com/abstract=165795 or http://dx.doi.org/10.2139/ssrn.165795

Lisandro Abrego (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carlo Perroni

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Randall Wigle

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
226 772-3164 (Phone)

Balsillie School of International Affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada
226 772-3164 (Phone)

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