Trade and environmental distortions: coordinated intervention

Jinhua Zhao

Environment and Development Economics, 2000, vol. 5, issue 4, 361-375

Abstract: Free trade may not improve welfare when environmental distortions exist. We study the coordination of trade and environmental policies when the distortion is loose property rights governing resources. Using the dual approach of Dixit and Norman (1980), we trade out ‘iso-welfare’ curves in the space of the degree of environment distortion and the level of the import tariff. We use these curves to find necessary and sufficient conditions for disproportionate reforms, piecemeal or discrete, to be welfare improving. We also find that the needed reduction in the distortion to make trade welfare improving increases as the environmental stock increases, the productivity of the environmentally intensive good increases, or when the country is a large exporter of the environmentally intensive good.

Date: 2000
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Working Paper: Trade and Environmental Distortions: Coordinated Intervention (2000)
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