Does trade always harm the global environment? A case for positive interaction

Abstract

We demonstrate that there are links between international trade and environmental control, heretofore unappreciated, which might substantially alter the efficacy of various governmental policies to control pollution. One concern about national environmental policies is that, whereas the benefits of certain types of abatement might be international or even worldwide, the costs will be borne strictly by the consumers and firms of the country which institutes the policy. As a result, for those types of pollution which are global (such as greenhouse gases) there will be too little pollution abatement. Our first result is that this pessimistic conclusion may be unwarranted. In a 2 x 2 Ricardian model, we also show cases where the non-cooperative contribution of countries to global environmental protection, contrary to the conventional results, exceeds that of the cooperative one due to associated changes in the terms of trade. Thus, international trade is not always a threat to global environment.