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International Trade and the Environment: Theoretical and Policy Linkages

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Abstract

I review and extend three approaches to trade and environmental policies: competitive general equilibrium, oligopoly and monopolistic competition. The first two have surprisingly similar implications: deviations from first-best rules are justified only by constraints on policy choice (which motivates what I call a “single dividend” approach to environmental policy), and taxes and emissions standards differ in ways which reflect the Le Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation of industry in the presence of agglomeration effects, although not necessarily if there is a continuum of industries which differ in pollution intensity.

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Authors and Affiliations

  1. Department of Economics, University College Dublin and CEPR Belfield, Dublin, Ireland

    J. Peter Neary

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  1. J. Peter Neary
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Correspondence to J. Peter Neary.

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*An earlier version was presented as an invited plenary lecture to the European Association for Environmental and Resource Economics Conference, Oslo, 1999.

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Neary, J.P. International Trade and the Environment: Theoretical and Policy Linkages. Environ Resource Econ 33, 95–118 (2006). https://doi.org/10.1007/s10640-005-1707-4

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