Green Technology Transfers and Border Tax Adjustments

Alain-Désiré Nimubona () and Horatiu Rus

No 1102, Working Papers from University of Waterloo, Department of Economics

Abstract: We develop a two-country general equilibrium model of foreign assistance tied to environmental clean-up in the presence of transboundary pollution. The recipient country generates pollution as a by-product in the production of a ‘dirty’ good, which it consumes as well as exports to the donor country. In contrast to the literature which typically treats aid as a monetary transfer, we assume that foreign aid consists in a transfer of environmental technology that lowers the cost of public clean-up in the recipient country. We highlight the fact that the marginal propensities to consume the polluting good in the donor and recipient countries are driving the terms of trade effect at work in our model. The environmental and welfare outcomes are influenced by the direct, terms of trade and abatement effects of the transfer. We show that such tied aid may be Pareto improving if the clean-up effect of the foreign aid is strong enough to compensate for the donor’s monetary and terms of trade losses. We finally analyze the effects of the green transfer combined with an appropriate border tax adjustment. Contrary to intuition, we find that green technology transfers and border tax adjustments are not complements.

JEL-codes: F18 F35 O13 Q28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2011-05, Revised 2011-05
New Economics Papers: this item is included in nep-env
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Journal Article: Green Technology Transfers and Border Tax Adjustments (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:1102

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