International trade and environmental regulations

This dissertation consists of five Chapters. Chapter I extensively reviews the literature on trade and the environment published since 1970.; Chapter II develops a model of foreign direct investment (FDI) to test the "Industry Flight" hypothesis. In the model, the stringency of the environmental regulations of the host countries is incorporated as one of determinants of FDI. A loglinear function of SO{dollar}sb2{dollar} emissions and real GDP are used to measure the stringency level of each host country. The statistic results show that environmental regulation is a significant determinant of the U.S. FDI. If a foreign country relaxes its environmental regulations such that the country's SO{dollar}sb2{dollar} emissions rise 1 percent, the FDI inflows will be expected to increase 0.26 million dollars.; Chapter III uses an international duopoly model to analyze how countervailing tariffs affect the strategic behavior of the foreign government in designing its environmental policy. The discussion is formulated by a three-stage game. It shows that if the foreign country deliberately deviates from the first best environmental policy, the home country will be better off by levying the optimal environmentally oriented tariff on the polluting intensive imports from the foreign country. Also, the tariff will mitigate the motivation of the foreign country pursuing strategic environmental policy and thus induce upward harmonization of environmental policy between the two countries.; Chapter IV uses a simple model to outline the optimal decision of MNE regulated by two different environmental policies: emission taxes and emission standards. The comparative static results indicate that the optimal reaction of the MNE to unilateral environmental regulation is to reduce its home outputs and the exports, but increase the outputs of its foreign subsidiary. However, the effect on the terms of trade is ambiguous. It depends on the foreign demand elasticity, the marginal contraction of the foreign production, as well as the initial ratio of the exports to the total foreign market supply. If environmental policy is appropriately designed, it could not only reduce the externality but also improve gains in terms of trade.; The conclusions are summarized in Chapter V.