Shared Renewable Resources: Gains from Trade and Trade Policy

Abstract

This paper examines the effects of international trade and trade policy in a two-country, two-good model with an open-access renewable resource that is internationally shared. We show that both countries may still benefit from trade when they specialize in the production of their comparative advantage good, although the shared resource is reduced by trade. In addition, we demonstrate that the steady state utility of a resource-good importing country may be reduced by trade, even if it specializes in the production of a non-resource good. Import tariffs and export taxes on a resource good may increase or decrease the shared stock level depending on the production patterns in a trading steady state. The trade policy is likely to be Pareto-improving when the shared stock rises, while both countries may be made worse off by the trade policy when the shared stock falls.

Shared renewable resources and gains from trade under technology standards

“…This condition holds when the preference for the resource good is strong (a large ). In this case, we can obtain the following two results that are shown by Takarada et al () (see Appendix for details).…”

“…We assume to make sure the post‐trade resource stock to be positive. In this case, we can obtain the following results (see Takarada et al, ). The shared stock is reduced by trade.…”

“…We present a two‐country, two‐good model with a shared renewable resource in the absence of resource management, which is developed by Takarada et al (). We refer to the two countries as “home” and “foreign,” which share the common renewable resource, and use asterisks to denote foreign variables.…”

“…However, they did not consider the effects of an opening up of trade under resource management. Takarada et al () extended the Brander and Taylor’s model and examined gains from trade under a shared renewable resource, but they focused on gains from trade and trade policy and made no analysis on resource management.…”

“…The basic settings of our model (production functions of goods, utility function, renewable resource growth function, etc.) are commonly used in the analysis on trade and renewable resources such as Brander and Taylor (, , ), Emami and Johnston (), Jinji (), Rus (), and Takarada, Dong, and Ogawa (). Two goods are a resource good and manufactures, and they are produced by employing labor.…”