Three essays on pollution regulations and international trade

In recent years, there have been considerable moves towards trade liberalization, including NAFTA and European Union. While trade economists have generally been supportive of these moves, some environmental economists have generally expressed concerns about the creation of, or exacerbation of, environmental problems as a result of liberalized trade. The purpose of this research is to advance understanding of the interactions between trade, the environment and public policy. Chapter 1 seeks to show in what ways differences in the stringency of domestic pollution regulations affect the countries' pattern of trade. It uses a North-South trade model to investigate conditions for the creation of pollution havens in the case where two countries are sufficiently different in their factor endowments and factor price equalization does not occur. Chapter 2 investigates the role for trade policy as a "second-best" instrument for addressing the transboundary stock pollutant externality. It explores optimal pollution regulation strategies and the effects on environmental quality and welfare under two different scenarios: in the presence and in the absence of strategic abatement. Comparison of the outcomes of these scenarios shows that in the case of asymmetric externality, strategic considerations encourage both countries to adopt feedback pollution control strategies, which may suggest a self-enforcing mechanism for attaining a mutually beneficial global trade and environmental agreement. Chapter 3 seeks to show to what extent trade and environmental regulations can be exploited by international political interests. It examines the effects of international lobbying on the solutions for transboundary pollution stock control involving two trading countries. It is found that if the government of the country suffering from transboundary externality is corruptible, the polluting country may find it optimal to use strategic investment in political capital rather than strategic abatement in order to affect the trade policy level. That, in turn, leads to a more lax regulation of transboundary pollution, degradation of environmental quality, and welfare reduction for the citizens of the country adversely affected by the pollution stock.