Valuation of biodiversity within a north south trade model

Francisco Cabo

Environment and Development Economics, 1999, vol. 4, issue 03, pages 251-277

Abstract: Under a General Equilibrium model of International Trade, industrialized countries export capital intensive goods, while developing countries export natural resource intensive goods. Biodiversity is viewed as the number of species conserved while producing these goods. Higher conservation increases demand, but lowers goods supply. Consumers value biodiversity as the weighted sum of all the different species. If producers of both goods conserve more species, the South's terms of trade will rise in relation to the North's. Furthermore, we believe that a switch in consumer preferences, to a more homogeneous valuation of the species, is likely. This change would drop the South's terms of trade. Therefore, under these circumstances, this region is facing a risk. In conserving additional species, the South would be better off, both because its terms of trade increases and because the risk associated with a switch in preferences decreases.

Date: 1999
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