M. Scott Taylor

Trade, Growth and the Environment

For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The debate has often been unproductive. It has been hampered by the lack of a common language and also suffered from little recourse to economic theory and empirical evidence. The purpose of this essay is set out what we currently know about the environmental consequences of economic growth and international trade. We critically review both theory and empirical work to answer three basic questions. What do we know about the relationship between international trade, economic growth and the environment? How can this evidence help us evaluate ongoing policy debates? Where do we go from here?

North-South Trade and the Environment

A simple static model of North-South trade is developed to examine linkages between national income, pollution, and international trade. Two countries produce a continuum of goods, each differing in pollution intensity. We show that the higher income country chooses stronger environmental protection, and specializes in relatively clean goods. By isolating the scale, composition, and technique effects of international trade on pollution, we show that free trade increases world pollution; an increase in the rich Norths production possibilities increases pollution, while similar growth in the poor South lowers pollution; and unilateral transfers from North to South reduce worldwide pollution.

TRIPs, Trade, and Growth

A two-country model of endogenous growth is employed to assess the importance of intellectual property rights to trade, growth, and technology transfer. The paper provides theoretical results linking the intellectual property rights regime to trade patterns, aggregate R&D, worldwide growth, and aggregate welfare measures. Failure to provide patent protection for foreign-made innovations forces innovators to employ less than the best practice research technologies, reduces aggregate R&D activities worldwide, effectively eliminates technology transfer across countries, and reduces worldwide growth. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Trade and the Environment: A Partial Synthesis

There is an emerging consensus in the environmentalist community opposing free trade. While some economists view this as simply another outlet for protectionism, recent work has begun to move beyond the rhetoric to probe more deeply into the theoretical and empirical relationships between international trade and environmental quality. The purpose of the present paper is twofold. We first integrate some of the existing literature by using the simple concepts of general equilibrium pollution supply and demand. Our survey of the trade and environment literature is more

Trade, spatial separation, and the environment

Abstract We develop a simple two-sector dynamic model to show how pollution can provide a motive for trade by spatially separating incompatible industries. We assume that the production of “Smokestack” manufactures generates pollution, which lowers the productivity of an environmentally sensitive sector (“Farming”). Two identical, unregulated countries will gain from trade if the share of world income spent on Smokestack goods is high. In contrast, when the share of world income spent on the dirty good is low , trade can usher in a negatively reinforcing process of environmental degradation and real income loss for the exporter of Smokestack goods.

‘Quality ladders’ and Ricardian trade

Abstract A model of endogenous growth and trade is developed that extends the continuum Ricardian model of Dornbusch et al. (1977) to a dynamic framework, generalizes the ‘quality ladders’ approach of Grossman and Helpman (1991a, b), and complements the work of Krugman (1987) on dynamic Ricardian economies. In contrast to earlier work the model incorporates heterogeneity across industries in research and production technologies, and in the technological opportunity for innovation. The importance of heterogeneity is demonstrated through a comparative steady-state analysis. Several applications for the model are discussed and many others appear possible given its relatively simple structure.

Innis Lecture: Environmental Crises: Past, Present, and Future

Environmental crises are distinguished by rapid and largely unexpected changes in environmental quality that are difficult if not impossible to reverse. Examples would be major extinctions and significant degradations of an ecosystem. I argue there are three preconditions for crisis: failures in governance, an ecological system exhibiting a tipping point, and an economy/environment interaction with positive feedbacks. I develop a simple model to illustrate how a crisis may arise, and draw on our knowledge of past and present crises to highlight the mechanisms involved. I then speculate as to whether climate change is indeed a crisis in the making.

The trade-induced degradation hypothesis

Abstract This paper develops a simple two-sector dynamic model to examine the effects of international trade when government policy regarding the environment is short sighted, but still responsive to changes in income levels and in the quality of the environment. We show that free trade can usher in a negatively reinforcing cycle of increased pollution, lower environmental quality, and lower real incomes. Such cycles are not possible in autarky. We link the potential for trade to cause ‘large’ environmental consequences to the structure of tastes and technologies and the attributes of industrial pollution.

Trade and Trade Policy in Endogenous Growth Models

Since the late 1980s, trade theorists have been aware that trading opportunities and trade policy can have important, and lasting, effects on a nation’s rate of economic growth. Conversely, since the time of Edgeworth, Mill and Ricardo trade economists have been studying the consequences of ongoing improvements in technology and growth of factor endowments for trading opportunities and trade policy. I follow this division of labour by specializing this review in a similar, and, I hope, complementary manner. The first goal of this chapter is to synthesize the major theoretical results from the new growth theory linking international trade and trade policy to permanent and lasting effects on growth rates. The second goal is to study how the consequences of ongoing endogenous growth may affect the incentives governments have to restrict trade at a point in time, and how endogenous growth can shape and limit the form of self-enforcing trade liberalizations that are supportable over time.

Can Green Power Save Us from Climate Change

SummaryInternational efforts to lower emissions have largely failed, and many now believe we will fail to limit warming to less than 2 degrees Celsius by 2100. In this extended abstract, I discuss whether a wholesale movement to renewable energy or Green Power could limit carbon emissions to meet a 2 degree Celsius target while simultaneously meeting the world’s growing demands for energy. Using a very simple growth model I calculate the burden Green Power must carry in order to keep emissions within the 2 degree target, and then discuss the speed, scope, and size of the energy transition this would imply. An energy transition of sufficient speed and magnitude to meet these targets is unlikely, leading me to believe that Green Power cannot save us from climate change.