A Simple Model of Trade, Capital Mobility, and the Environment

   (485 K)

This paper examines the interaction between relative factor abundance and income-induced policy differences in determining the pattern of trade and the effect of trade liberalization on pollution. If a rich and capital abundant North trades with a poor and labor abundant South, then free trade lowers world pollution. Trade shifts the production of pollution intensive industries to the capital abundant North despite its stricter pollution regulations. Pollution levels rise in the North while those in the South fall. These results can be reversed however if the North-South income gap is "too large," in this case, the pattern of trade is driven by income-induced pollution policy differences across countries. Capital mobility may raise or lower world pollution depending on the pattern of trade.

Published:

• "North-South Trade and the Environment", Quarterly Journal of Economics, Vol.109, no.3 (1994): 755-787. ,
• "Trade and the Environment: A Partial Synthesis", American Journal of Agricultural Economics, Vol. 77, No. 3, (August 1995): 765-771. ,
• Copeland, Brian R. & Taylor, M. Scott, 1999. "Trade, spatial separation, and the environment," Journal of International Economics, Elsevier, vol. 47(1), pages 137-168, February.

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