Global Pollution, Dynamic and Strategic Policy Interactions, and Long-run Effects of Trade

Abstract

This paper examines the effects of international trade in a model with global pollution that accumulates over time because of production emissions in each country. If countries cooperatively determine the national environmental policies, the long-run stock of global pollution under trade may or may not be higher than that under autarky, depending on abatement technologies and trade costs. If environmental policies are determined noncooperatively, there may be multiple equilibria. This means that the long-run effect of trade on the global environment may be indeterminate because it depends on, in addition to trade costs and abatement technologies, the actually implemented policy. The welfare consequences of trade are also discussed.