A Simple Model of Trade, Capital Mobility, and the Environment

19 Pages Posted: 19 Jul 2004 Last revised: 13 Feb 2022

See all articles by Brian R. Copeland

Brian R. Copeland

University of British Columbia

M. Scott Taylor

University of Calgary - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 1997

Abstract

This paper examines the interaction between relative factor abundance and income-induced policy differences in determining the pattern of trade and the effect of trade liberalization on pollution. If a rich and capital abundant North trades with a poor and labor abundant South, then free trade lowers world pollution. Trade shifts the production of pollution intensive industries to the capital abundant North despite its stricter pollution regulations. Pollution levels rise in the North while those in the South fall. These results can be reversed however if the North-South income gap is "too large," in this case, the pattern of trade is driven by income-induced pollution policy differences across countries. Capital mobility may raise or lower world pollution depending on the pattern of trade.

Suggested Citation

Copeland, Brian and Taylor, Michael Scott, A Simple Model of Trade, Capital Mobility, and the Environment (January 1997). NBER Working Paper No. w5898, Available at SSRN: https://ssrn.com/abstract=225680

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Michael Scott Taylor

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