Working Paper: CEPR ID: DP1598
Authors: Larry Karp; Sandeep Sacheti; Jinhua Zhao
Abstract: We use a North-South model with property right differences and resource dynamics to study the effects of trade on resource use and welfare. Autarky is likely to Pareto-dominate free trade in the long run when the environment is quite fragile, and the result is reversed when the environment is quite resilient. Trade may cause an environmentally poor country to ?drag down? its richer trading partner, or cause both countries to degrade their stocks when these would be preserved under autarky. Alternatively, trade may enable the environmentally richer country to ?pull up? its partner or cause both countries to preserve their stocks when these would be degraded under autarky. These results rationalize the positions of environmentalists and free-traders. The direction of trade may change over time, but in steady states it is either inefficient or indeterminate. In the former case a switch to autarky would increase global welfare.
Keywords: General Equilibrium; International Trade; Development Policy; Environmental Management
JEL Codes: D5; F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade (T) (F19) | Environmental stocks (E) (Q56) |
| Environmental stocks (E) (Q56) | Welfare (W) (I38) |
| Trade (T) (F19) | Welfare (W) (I38) |