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Market integration, environmental policy, and transboundry pollution from consumption

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  • Kenji Fujiwara

Abstract

Recent empirics report that transport cost reductions significantly contribute to rapidly growing world trade. This article develops a reciprocal market model of intra-industry trade with transboundary pollution from consumption to consider how market integration in the form of transport cost reductions affects the noncooperative choice of an environmental policy and the equilibrium welfare. I show that market integration can improve welfare locally, but that welfare under any non-prohibitive trade cost can not be higher than welfare under autarky. This possibility of trade losses exhibits a sharp contrast to the case of production-generated pollution.

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  • 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.
    • Handle: RePEc:taf:jitecd:v:21:y:2012:i:4:p:603-614
    DOI: 10.1080/09638199.2010.508127
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