Trade, Spatial Separation, and the Environment

Brian Copeland () and M. Scott Taylor

No 5242, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a simple two-sector dynamic model to examine the effects of international trade in the presence of pollution-created cross- sectoral production externalities. We assume that the production of 'Smokestack' manufactures generates pollution, which lowers the productivity of an environmentally sensitive sector ('Farming'). As a result, the long run production set is non-convex. Pollution provides a motive for trade, since trade can spatially separate incompatible industries. Two identical, unregulated countries will gain from trade if the share of world income spent on Smokestack is high. In contrast, when the share of world income spent on the dirty good is low, trade can usher in a negatively reinforcing process of environmental degradation and real income loss for the exporter of Smokestack.

JEL-codes: F10 Q20 (search for similar items in EconPapers)
Date: 1995-08
Note: ITI EEE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Journal of International Economics, Vol. 47 (February 1999): 137-168.

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Journal Article: Trade, spatial separation, and the environment (1999)
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