Trade agreements, domestic environmental regulation, and transboundary pollution

Yu-Bong Lai and Chia-Hsien Hu

Resource and Energy Economics, 2008, vol. 30, issue 2, 209-228

Abstract: This paper investigates a second-best trade agreement between two countries that takes the distortion arising from their non-coordinated environmental policies into consideration. In a reciprocal-markets model with bidirectional transboundary pollution, we find that if the transboundary pollution is sufficiently strong, the second-best trade agreement requires that both countries subsidize the imported goods whose consumption gives rise to pollution. We also find that a bilateral tariff reduction is beneficial to the global environment.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:30:y:2008:i:2:p:209-228

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