Intra-Industry Trade and the Environment

45 Pages Posted: 24 Mar 2017 Last revised: 16 Dec 2017

See all articles by Liang Chen

Liang Chen

Wuhan University

Jevan Cherniwchan

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: December 15, 2017

Abstract

This paper develops a one-sector general equilibrium model featuring differentiated products, monopolistic competition, and endogenous environmental policy to examine the effects of intra-industry trade on the environment. Our results suggest: (i) the environmental effects of trade depend on how consumers respond to the gains created by new imported varieties, (ii) free trade between identical countries can be welfare improving, even if pollution emissions increase with trade, (iii) free trade can yield globally inefficient pollution levels even if governments initially set efficient policy in autarky, and (iv) maximizing global welfare requires accompanying free trade with an environmental agreement that coordinates environmental policy across countries.

Keywords: Intra-Industry Trade, Environment and Trade, Environmental Regulation, International Environmental Policy

JEL Classification: F12, F18, Q56, Q58

Suggested Citation

Chen, Liang and Cherniwchan, Jevan, Intra-Industry Trade and the Environment (December 15, 2017). University of Alberta School of Business Research Paper No. 2017-703, Available at SSRN: https://ssrn.com/abstract=2939849 or http://dx.doi.org/10.2139/ssrn.2939849

Liang Chen

Wuhan University ( email )

Wuhan
China

Jevan Cherniwchan (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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