The Interaction of Environmental and Trade Policies

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School of Business | Doctoral thesis (article-based) | Defence date: 2003-09-05
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Date

2003

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Kansantaloustiede
Economics

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Language

en

Pages

[160] s.

Series

Acta Universitatis oeconomicae Helsingiensis. A, 222

Abstract

This work is about the linkage between two important policies that play an important role in shaping the future world. International trade is essential for the welfare of the world as well as for the welfare of different regions. Trade policies that different nations pursue are important for this reason. On the other hand economic activity that is needed to create goods and services for consumers unfortunately usually also causes pollution. The level of emissions has reached magnitudes such that actions to contain pollutants emitted from the production processes have been generally accepted to be necessary. Environmental policies to reduce emissions have moved to the next level at the international scene traditionally dominated by negotiations about trade liberalization due to the Kyoto-protocol. Both environmental and trade policies have attracted a lot of interest in the academic field. What has been so far largely neglected in the literature is the interaction of the two. It is easy to imagine that the introduction of environmental policies leads to reassessment of trade policies or that the negotiations about the other policy affect the negotiations about the other one. Formal work on these issues has been scarce and the purpose of this work is to contribute to this. The focus is on the implications of the introduction of environmental policies to trade policies. How environmental policies may affect the relative attractiveness of regional vs. multilateral trade liberalization? Do environmental policies have an effect on investments by firms and how does the existence of environmental policies affect the welfare implications of changes in trade policies? This work consists of four articles addressing these questions and the linkage between environmental and trade policies from different aspects. Two of the articles focus on the effects of the introduction of environmental policies to trade policies. One article addresses the question about the role of environmental policies to foreign direct investments and the last one concentrates on simulations about the effects of environmental policies to the welfare implications of the expansion of regional trading blocks (EU and NAFTA). It is found in this work that environmental policies do not hinder the creation of regional trading arrangements that are welfare improving but that environmental policies can make a big difference. Environmental agreements can decrease the risk that regionalism becomes a stumbling block to multilateral free trade. It is also found that environmental agreements can promote investments to the regions that are not participating in the emission reductions but this effect is not unambiguous. Hence, the intuition that emission reductions in some countries lead to reallocation of production to other regions does not have to be a correct one. The simulations about the EU-expansion confirm that the two policies are linked to each other. The implications of the EU-expansion are clearly affected by the existence of Kyoto-type environmental policies. The method how these policies are introduced (emission permit trading vs. no trading) does also affect the welfare implications of the expansion.

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Haaparanta, Pertti, professor

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https://urn.fi/URN:ISBN:951-791-797-X

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[diss] Kauppakorkeakoulu / BIZ