Essays on trade and the environment

This dissertation examines the theoretical and empirical issues on international trade and environment. Chapter one examines the effect of import tariffs on the decision of a foreign monopolist to adopt a technology that reduces the flow of a negative cross-border externality per unit of output. This technology is assumed to increase the marginal cost of production relative to the existing technology, but the extent of the increase may be known only to the firm. Under complete information, despite its rent-shifting motivation, the importing country's optimal tariff induces the firm to adopt the clean technology if and only if it is globally efficient to do so. Under incomplete information, this efficiency property is disrupted. If the optimal tariff is decreasing in the marginal cost, then it leads to the firm to bias its choice in favor of dirty technology.; Chapter two examines a WTO-consistent policy, product standards, which is instituted by a government that may have protectionist motives. Under Article III of GATT, a country may set product standards at any level, provided that the standards are applied equally to both domestic and foreign firms. However, if the firms have different cost structures imposing the same standards will surely have different cost impacts on the firms. If a government has protectionist motives, it may set the standard in such a way that imposes the maximum cost burden on the foreign firms. Using an international Cournot duopoly model with one-sided asymmetric information, it is found that protectionist motives in the presence of asymmetric information about the foreign firm's marginal cost deters the foreign firms to upgrade to a superior technology, which would result in a cleaner environment.; Chapter three examines empirically the effect of environmental regulations on trade flows of products that are sensitive to such regulations. Using an extended gravity model which covers 30 countries, it is found that stringent domestic environmental regulations do not significantly affect level of exports of the resource based industries. However, a negative and significant relationship was found between the stringency of domestic environmental regulations and the level of exports of non-resource based (i.e. “footloose”) industries.