Optimal Volume of Environmentally Damaging Trade

Abstract

It is controversial whether international trade enhances or degrades the global environment. In this model, environmental quality, as measured by biodiversity, is damaged by the consequences of trade, which include the commercialization of natural habitat, pollution and bioinvasion. However, there are also benefits of trade. When both countries internalize the external costs of production and trade, measures of environmental quality may be higher or lower as a consequence of trade, but there is always, unambiguously, less trade the more environmentally damaging it is.

On trade, land-use, and biodiversity

“…For example, Chichilnisky [7] and Brander and Taylor [5] show that trade liberalization with incomplete property rights can lead to resource depletion outweighing conventional gains from trade. Barbier and Schulz [4] and Kohn and Capen [13] examine the relationship between trade policy and biodiversity. Barbier and Schulz [4] analyze how international transfers and trade interventions affect a countries resource harvest and land conservation decisions; they explicitly incorporate the species-area curve into their bioeconomic model, however they do not consider biodiversity in more than a single country.…”

“…Barbier and Schulz [4] analyze how international transfers and trade interventions affect a countries resource harvest and land conservation decisions; they explicitly incorporate the species-area curve into their bioeconomic model, however they do not consider biodiversity in more than a single country. Kohn and Capen [13] characterize the optimal volume of trade when governments use efficient pollution and trade taxes; they treat all land within a country as generic and proxy environmental quality by the sum of species occurring in each country (thereby ignoring issues surrounding endemism and the contribution of local species diversity to welfare).…”