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Trade Sanctions and Green Trade Liberalization

Alireza Naghavi

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: This paper studies the impact of a WTO withdrawal of trade concessions against countries that fail to respect globally recognized environmental standards. We show that a punishing tariff can be effective when environmental and trade policies are endogenous. When required standards lie within a reasonable range, compliance along with free trade as a reward is the unique equilibrium outcome. A positive optimal tariff in the case of non-compliance prevents pollution-motivated delocation, but only works as a successful credible threat and does not emerge in equilibrium. Results are consistent with broad empirical evidence that disputes the pollution haven hypothesis and suggests capital movements to be non-pollution related.

Keywords: Environmental Policy; WTO; Delocation; Tariffs; Credible Threat (search for similar items in EconPapers)
JEL-codes: F13 F18 F23 H23 Q56 R38 (search for similar items in EconPapers)
Pages: pages 21
Date: 2008-03
New Economics Papers: this item is included in nep-env
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Journal Article: Trade sanctions and green trade liberalization* (2010) Downloads
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