IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i7p2428-d157506.html
   My bibliography  Save this article

Upstream Pricing Schemes, Trade Liberalization, Trade and Environmental Policies of Downstream Countries

Author

Listed:
  • Bo Li

    (School of Economics and Environmental Resources, Hubei University of Economics, 8 Yangqiaohu Avenue, Wuhan 430205, China)

  • Fei Xing

    (School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Wuhan 430074, China)

  • Mark Yu

    (Department of Agriculture & Consumer Science, Tarleton State University, 1333 W Washington Street, Stephenville, TX 76401, USA)

Abstract

Trade liberalization has a significant impact on the environment and social welfare of countries. In the real world, almost all industries exist upstream and downstream firms but the existing literature on the impact of trade liberalization rarely discuss the interaction between upstream and downstream firms. The goal of this study is to analyze the effects of trade liberalization on the trade policies, environmental policies and social welfare of downstream exporting countries when different pricing schemes (uniform pricing vs. discriminatory pricing) are implemented by upstream monopoly firms. By constructing a three-stage dynamic game model we found that, regardless of pricing schemes, trade liberalization leads to increase both environmental taxes and import taxes. Trade liberalization increases the social welfare of downstream countries under discriminatory pricing, while trade liberalization first reduces and then increases the social welfare of downstream countries under uniform pricing. The results indicate that the downstream countries always have the incentive to participate in trade agreements that integrate markets when discriminatory pricing schemes will be implemented by upstream firms. This finding is the most significant contribution of this paper which has not been addressed in the previous literature.

Suggested Citation

  • Bo Li & Fei Xing & Mark Yu, 2018. "Upstream Pricing Schemes, Trade Liberalization, Trade and Environmental Policies of Downstream Countries," Sustainability, MDPI, vol. 10(7), pages 1-13, July.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:7:p:2428-:d:157506
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/7/2428/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/7/2428/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Judith M. Dean, 2002. "Does trade liberalization harm the environment? A new test," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 819-842, November.
    2. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    3. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
    4. Bernhofen, Daniel M., 1999. "Intra-industry trade and strategic interaction: Theory and evidence," Journal of International Economics, Elsevier, vol. 47(1), pages 225-244, February.
    5. Walz, Uwe & Wellisch, Dietmar, 1997. "Is free trade in the interest of exporting countries when there is ecological dumping?," Journal of Public Economics, Elsevier, vol. 66(2), pages 275-291, November.
    6. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September.
    7. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 793-811, November.
    8. Burguet, Roberto & Sempere, Jaume, 2003. "Trade liberalization, environmental policy, and welfare," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 25-37, July.
    9. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    10. Kalyan K. Sanyal & Ronald W. Jones, 2018. "The Theory of Trade in Middle Products," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 13, pages 203-231, World Scientific Publishing Co. Pte. Ltd..
    11. Kenji Fujiwara, 2010. "Strategic Environmental Policies and the Gains from Trade Liberalization," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 360-373, May.
    12. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    13. Friberg, Richard & Ganslandt, Mattias, 2006. "An empirical assessment of the welfare effects of reciprocal dumping," Journal of International Economics, Elsevier, vol. 70(1), pages 1-24, September.
    14. Kenji Fujiwara, 2011. "Market Integration and Competition in Environmental and Trade Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 561-572, August.
    15. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-840, Supplemen.
    16. Bernhofen, Daniel M, 1997. "Strategic Trade Policy in a Vertically Related Industry," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 429-433, August.
    17. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
    18. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-1253, December.
    19. Lahiri, S. & Ono, Y., 1998. "Export-Oriented Foreign Direct Investment and Local Content Requirement," ISER Discussion Paper 0456, Institute of Social and Economic Research, Osaka University.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kenji Fujiwara, 2011. "Market Integration and Competition in Environmental and Trade Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 561-572, August.
    2. Kenji Fujiwara, 2012. "Market integration, environmental policy, and transboundry pollution from consumption," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(4), pages 603-614, July.
    3. Onur A. Koska & Frank Stähler & Onur Yeni, 2020. "Trade and commodity taxes as environmental instruments in an open economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 333-353, June.
    4. Kenji Fujiwara, 2010. "Strategic Environmental Policies and the Gains from Trade Liberalization," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 360-373, May.
    5. Harvey E. Lapan & Shiva Sikdar, 2017. "Can Trade Be Good for the Environment?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 267-288, April.
    6. Alain-Désiré Nimubona, 2012. "Pollution Policy and Trade Liberalization of Environmental Goods," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(3), pages 323-346, November.
    7. Dermot Leahy & J. Peter Neary, 2013. "Oligopoly and Trade," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 7, pages 197-235, Palgrave Macmillan.
    8. Neary, Peter, 2009. "Two and a Half Theories of Trade," CEPR Discussion Papers 7600, C.E.P.R. Discussion Papers.
    9. Nikos Tsakiris & Michael Michael & Panos Hatzipanayotou, 2014. "Asymmetric Tax Policy Responses in Large Economies With Cross-Border Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 563-578, August.
    10. Takeshi Iida & Kenji Takeuchi, 2011. "Does free trade promote environmental technology transfer?," Journal of Economics, Springer, vol. 104(2), pages 159-190, October.
    11. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 793-811, November.
    12. Odd Rune Straume, 2006. "Product Market Integration and Environmental Policy Coordination in An International Duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(4), pages 535-563, August.
    13. Eden, Benjamin, 2007. "Inefficient trade patterns: Excessive trade, cross-hauling and dumping," Journal of International Economics, Elsevier, vol. 73(1), pages 175-188, September.
    14. Alassane Drabo, 2011. "Agricultural primary commodity export and environmental degradation: what consequences for population's health?," CERDI Working papers halshs-00586034, HAL.
    15. Qianqian Shao & Thorsten Janus & Maarten J. Punt & Justus Wesseler, 2018. "The Conservation Effects of Trade with Imperfect Competition and Biased Policymakers," Agriculture, MDPI, vol. 8(7), pages 1-22, July.
    16. Natalia Zugravu-Soilita, 2019. "Trade in Environmental Goods and Air Pollution: A Mediation Analysis to Estimate Total, Direct and Indirect Effects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1125-1162, November.
    17. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
    18. Judith M. Dean & Mary E. Lovely, 2010. "Trade Growth, Production Fragmentation, and China's Environment," NBER Chapters, in: China's Growing Role in World Trade, pages 429-469, National Bureau of Economic Research, Inc.
    19. Soham Baksi, 2014. "Regional versus Multilateral Trade Liberalization, Environmental Taxation, and Welfare," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(1), pages 232-249, February.
    20. Benarroch, Michael & Weder, Rolf, 2006. "Intra-industry trade in intermediate products, pollution and internationally increasing returns," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 675-689, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:7:p:2428-:d:157506. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.