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Title :International trade, natural resources, and the environment
Creator :Θεοδώρου, Απόστολος
Contributor :Γάτσιος, Κωνσταντίνος (Επιβλέπων καθηγητής)
Athens University of Economics and Business, Department of Economics (Degree granting institution)
Type :Text
Extent :130p.
Language :en
Abstract :In recent years, the conflict between environmental and trade interests has drawn much of researchers’ attention, emerging as one of the most complex and debatable issues in international trade theory and policy. Many supporters of trade liberalization believe that abolishing trade barriers would allow countries across the world to use their resources more efficiently, without deteriorating environmental quality. Furthermore, positive income effects induced by trade liberalization would allow governments to protect environmental quality more effectively.On the contrary, some environmental interest groups oppose the free trade argument, arguing that trade liberalization increases world's demand for natural resources, thus pushing natural resources towards depletion; and stimulates pollution intensive production sectors, thereby increasing world pollution. Therefore, from this point of view, setting trade barriers may be beneficial for the environment.However, whether trade liberalization improves or worsens the environment is not that obvious. Moreover, the optimal way in which trade policy and environmental policy should be coordinated does not follow any general rule, and it depends on various factors. For example, many developing countries face a policy dilemma: should they become more open to trade to gain from the income effects of trade liberalization, or should they focus on reducing the damage on their vulnerable environment? Their pressing needs for increasing incomes, economic growth and exports raise important questions about how to balance environmental protection, economic development and trade.This thesis presents the most important parts of recent literature that attempt to answer these questions and provide a theoretical context about the linkages between trade and environmental variables, including policy variables.The thesis is organized into two parts. The first part focuses on the impact of trade liberalization on the environment. Trade liberalization may be beneficial or hazardous for the environment. Some countries have comparative advantage in pollution intensive production sectors. Hence, free trade stimulates production in these sectors, thereby having a negative impact on those countries’ environmental quality. Similarly, some countries have comparative advantage in production sectors that use nationally owned natural resources as inputs, and thus, free trade pushes those resources towards depletion, stimulating the production in such sectors. Moreover, since environmental policy is more stringent in some countries and weaker in other countries, there might be an incentive for firms in pollution intensive sectors, or sectors that use a natural resource intensively, to reallocate their production to those countries in which polluting, or causing resource depletion, is less costly. On the other hand, relatively richer countries can protect their environmental quality and prevent depletion of their nationally owned resources more easily and more effectively. Thus if those countries have comparative advantage in an environmentally harmful sector, free trade need not lead to environmental degradation.The second part focuses on the linkages between trade policy and environmental policy. Trade policy instruments and environmental policy instruments depend on each other, given that governments maximize domestic welfares. Trade policy responds to environmental problems as long as environmental policy is not set optimally. In addition, environmental policy may be designed as a substitute of trade policy, targeting both environmental problems and terms of trade, in the case of free trade restrictions, implemented by trade agreements or customs unions. Finally, when pollution spills over international borders, the responsiveness of each country on the other countries’ pollution alters the optimal coordination scheme of trade and environmental policy.
Subject :Trade liberalization
Environmental policy
Trade policy
Date :29-02-2016
Licence :

File: Theodorou_2016.pdf

Type: application/pdf