Session 13 Trade and the Environment

Two Different Effects of Trade toward the Environment 1.The larger size of the economy leads to more pollution, when other thing equal. 1.The higher income can lead to more pressure on government to enact tougher environmental protection policies

Three Basic Patterns on International Trade and Environment 1. Environmental harm declines with rising income per person. 2. Environmental harm rises with rising income per person. 2. The relationship is an inverted U.

This pattern is mostly found in the developing counties  The reason behind this is base on the H-O theory; as the world moves toward freer trade, production of capital – and – skill intensive products expands in the developed countries and shrinks in the developing country.

This pattern is mostly found in the developed counties  The reason behind this is base on the H-O theory; as the world moves toward freer trade, production of capital – and – skill intensive products expands in the developed countries and shrinks in the developing country.

This pattern is mostly found in the undeveloped counties  The demand for better environment is weak at first as the people are willing to accept some environment harm to increase income. But at some point at which the dire effects of poverty have been reduce enough, the demand for better quality becomes more forceful.

Types of Externalities and Production-market Prescriptions

Trade and Domestic Pollution Dd Sd Sd+ $0.30 MEC Without Trade World Price (with Trade) Export Increased Producer Surplus Decreased Consumer Surplus Net Gain Increased External Cost Import Decreased External Cost

German’s marginal benefits from dumping waste in the river Marginal Costs of waste dumping (loss of river services in Austria) Tran-border Pollution “Optimal amount of pollution” (This is because both country share the different kind of benefit) How can Austria enforce German to produce at this point ?

Global Environmental Challenges Global Problems Need Global Solutions Extinction of SpeciesOverfishingCFCs and OzoneGreenhouse Gases