Can Cleaner Environment Promote International Trade? Environmental Policies as Export Promoting Mechanisms

Ioanna Pantelaiou (), Panos Hatzipanayotou, Panagiotis Konstantinou () and Anastasios Xepapadeas
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Ioanna Pantelaiou: Athens University of Economics and Business
Panagiotis Konstantinou: Athens University of Economics and Business

Environmental & Resource Economics, 2020, vol. 75, issue 4, No 5, 809-833

Abstract: Abstract We examine whether environmental protection enhances international trade in a model of an international duopoly where production uses a depletable resource and generates cross-border pollution, and firms export their output to a world-market. Governments control pollution via either an emission tax, with revenue being used either to finance public pollution abatement or being refunded to the emitting firm contingent on reducing the cost of private pollution abatement (revenue-recycling), or an environmentally related standard. We evaluate these policies in terms of promoting exports, conserving the endowment of the natural resource, reducing pollution, and enhancing welfare. Our results indicate that in most cases, (1) revenue recycling is an export-contracting but resource preserving policy which also encourages firms’ pollution abatement activity, (2) public pollution abatement is an export-promoting but resource depleting policy. When the public sector is efficient in abating pollution, then overall pollution level across countries is lower compared to their level under tax-revenue recycling. Both policies entail ambiguous welfare effects. Environmental standards relative to public abatement is an export-contracting but resource preserving policy. Relative to revenue recycling work in the opposite way; they are always, however, welfare-enhancing.

Keywords: Emission taxation; Public pollution abatement; Recycling tax revenues; Environmentally related standards; International trade (search for similar items in EconPapers)
JEL-codes: F18 H23 Q58 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Working Paper: Can Cleaner Environment Promote International Trade? Environmental Policies as Export Promoting Mechanisms (2018)
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DOI: 10.1007/s10640-020-00408-1

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