Trade Liberalization, Environmental Policies of the Exporting Country, and Pollution Emission

Abstract

This article examines the effects of trade liberalization on the environmental policies set by the government of an exporting country, the amount of investment in pollution abatement technology, the amount of pollution emission, and the welfare of an importing country. We begin with the case of foreign monopoly and demonstrate that, in the presence of technology change, trade liberalization may both improve the welfare of the importing country and reduce transboundary pollution. We derive the conditions under which such an outcome occurs. Moreover, we extend the model to the case of foreign oligopoly.