Title: Pollution Effects of Free Trade Areas: Simulations from a General Equilibrium Model
Author: Péridy, Nicolas
Author Affiliation: Laboratoire d'Economie de Nantes, Université de Nantes, France
Abstract:

A 2 factors, 2 goods, 3 countries general equilibrium model is developed to assess the effects of a Free Trade Area (FTA) on pollution emissions. One contribution of this model is to simultaneously include country-differences in factor endowment, environmental regulation, pollution abatement technology, marginal disutilities of pollution, as well as terms of trade effects. All these factors play together a crucial role in the trade-environment relationship. In addition, this paper provides numerical simulations for a FTA and alternative trade policies. We show that implementing a FTA increases world pollution emissions as compared to full trade liberalization, even if eissions inside the FTA are reduced. A second result highlights that in case of non-discriminating protection, world pollution is further increased. The intution underlying these results is that protection incites the country with the cleanest technology to leave some production to counrtries with dirtier techniques. Another explanation, though minor, may be found in the improvement of the partners' terms of trade.


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