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AGRICULTURAL TRADE LIBERALIZATION AND STRATEGIC ENVIRONMENTAL POLICY: A FORMAL ANALYSIS

Thilo W. Glebe and Latacz-Lohmann, Uwe

No 20277, 2004 Annual meeting, August 1-4, Denver, CO from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: This paper develops an extended general equilibrium model of international trade in order to analyze the welfare effects of agricultural trade liberalization if a large country influences its terms of trade by means of environmental policy. We derive globally optimal first-best and second-best environmental and trade policy combinations as a benchmark for assessing the trade-distorting character of strategically motivated environmental policies and demonstrate that if second-best rather than first-best policies are chosen as a benchmark the conclusions may differ not only in magnitude but also in direction. We further demonstrate that if a Pigouvian instrument is transformed into a strategic environmental policy, following trade liberalization, the global welfare effect is unambiguously positive. We thereby prove that the distorting effect of an optimal tariff is generally greater than that of a strategically motivated environmental policy.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea04:20277

DOI: 10.22004/ag.econ.20277

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