INTERNATIONAL TRADE AND THE ENVIRONMENT:
THEORETICAL AND POLICY LINKAGES

J. Peter Neary

Abstract

I review and extend three approaches to trade and environmental policies: competitive general equilibrium, oligopoly and monopolistic competition. The first two have surprisingly similar implications: deviations from first-best rules are justified only by constraints on policy choice (which motivates what I call a "single dividend" approach to environmental policy), and taxes and emissions standards differ in ways which reflect the Le Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation of industry in the presence of agglomeration effects, although not necessarily if there is a continuum of industries which differ in pollution intensity.

JEL Codes: O13, L13, F12.

Keywords: Environmental policy; international trade policy; location and economic geography; pollution abatement; strategic trade policy.

Published in Environmental and Resource Economics, January 2006.

Click here for a pre-publication pdf version.

Click here for Appendices 1-4, not included in the published version.

Please send any comments to: peter.neary@ucd.ie

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