IDEAS home Printed from https://ideas.repec.org/a/wly/canjec/v41y2008i3p817-837.html
   My bibliography  Save this article

Free trade and the burden of domestic policy

Author

Listed:
  • Sumeet Gulati

Abstract

. Consider a small economy facing accession to a exogenously defined trade agreement. Before accession, the government controls trade and pollution policy. After accession, it retains control over pollution policy, but must allow free trade in all goods. This is a choice many governments face while joining trade agreements today. They decide whether greater market access to other members is more valuable than control over trade policy. I ask two questions. All else being equal what happens to environmental policy after accession? Second, what affects the choice of accession and how does this choice impact aggregate welfare? I show that a loss in control over trade policy alters the political incentives determining environmental policy. Before accession, producers can transfer a portion of their burden of environmental regulation to consumers through price increases. After accession the same regulation is borne entirely by producers. Owing to the change in burden, there exist plausible conditions under which the adoption of free trade can lead to more stringent environmental regulation, a reduction in the preferential treatment of special interest groups, and an increase in aggregate welfare. On examine la situation d'une petite économie considérant l'accession possible à un accord commercial défini par des forces exogènes. Avant l'accès, le gouvernement contrôle sa politique commerciale et environnementale. Après l'entrée dans cet accord, le gouvernement retient le contrôle sur la politique environnementale mais doit permettre le libre commerce de tous les biens. C'est un choix auquel plusieurs gouvernements doivent faire face au moment de faire des accords commerciaux. Ils doivent décider si l'accès à un plus vaste marché vaut davantage que le contrôle sur la politique commerciale. On s'interroge sur deux points: d'abord, toutes choses étant égales par ailleurs, qu'arrive‐t‐il à la politique environnementale après la signature de l'accord? ensuite, quelles sont les forces déterminantes dans ce choix, et quel est son impact sur le niveau de bien‐être? On montre que la perte de contrôle de la politique commerciale modifie les incitations politiques qui déterminent la politique environnementale. Avant l'accession, les producteurs peuvent transférer une portion du fardeau de la réglementation environnementale aux consommateurs via des augmentations de prix. Après l'accession, le fardeau de cette réglementation doit être porté entièrement par les producteurs. A cause de ce changement, il existe des conditions plausibles qui mènent à croire que l'adoption du libre échange va entraîner une réglementation environnementale plus robuste, une réduction du traitement préférentiel de certains groupes d'intérêt, et un accroissement dans le niveau agrégé de bien‐être.

Suggested Citation

  • Sumeet Gulati, 2008. "Free trade and the burden of domestic policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(3), pages 817-837, August.
    • Handle: RePEc:wly:canjec:v:41:y:2008:i:3:p:817-837
    DOI: 10.1111/j.1540-5982.2008.00487.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-5982.2008.00487.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-5982.2008.00487.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    2. 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.
    3. Damania, Richard & Fredriksson, Per G., 2003. "Trade policy reform, endogenous lobby group formation, and environmental policy," Journal of Economic Behavior & Organization, Elsevier, vol. 52(1), pages 47-69, September.
    4. Brander, James A. & Scott Taylor, M., 1998. "Open access renewable resources: Trade and trade policy in a two-country model," Journal of International Economics, Elsevier, vol. 44(2), pages 181-209, April.
    5. McAusland, Carol, 2003. "Voting for pollution policy: the importance of income inequality and openness to trade," Journal of International Economics, Elsevier, vol. 61(2), pages 425-451, December.
    6. Brander, James A. & Scott Taylor, M., 1997. "International trade between consumer and conservationist countries," Resource and Energy Economics, Elsevier, vol. 19(4), pages 267-297, November.
    7. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
    8. Hettige, Hemamala & Martin, Paul & Singh, Manjula & Wheeler,David R., 1995. "The industrial pollution projection system," Policy Research Working Paper Series 1431, The World Bank.
    9. Hettige, Hemamala & Lucas, Robert E B & Wheeler, David, 1992. "The Toxic Intensity of Industrial Production: Global Patterns, Trends, and Trade Policy," American Economic Review, American Economic Association, vol. 82(2), pages 478-481, May.
    10. Schleich, Joachim, 1999. "Environmental quality with endogenous domestic and trade policies1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 53-71, March.
    11. repec:bla:reviec:v:8:y:2000:i:4:p:681-97 is not listed on IDEAS
    12. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
    13. Bommer, Rolf & Schulze, Gunther G., 1999. "Environmental improvement with trade liberalization," European Journal of Political Economy, Elsevier, vol. 15(4), pages 639-661, November.
    14. Joachim Schleich & David Orden, 2000. "Environmental Quality and Industry Protection with Noncooperative Versus Cooperative Domestic and Trade Policies," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 681-697, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Per G. Fredriksson & Xenia Matschke, 2016. "Trade Liberalization and Environmental Taxation in Federal Systems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 150-167, January.
    2. Emma Aisbett & Magdalene Silberberger, 2021. "Tariff liberalization and product standards: Regulatory chill and race to the bottom?," Regulation & Governance, John Wiley & Sons, vol. 15(3), pages 987-1006, July.
    3. Olper, Alessandro, 2017. "The political economy of trade-related regulatory policy: environment and global value chain," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(3), February.
    4. Alain-Désiré Nimubona & Horatiu Rus, 2015. "Green Technology Transfers and Border Tax Adjustments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 189-206, September.
    5. Ederington,Josh & Ruta,Michele, 2016. "Non-tariff measures and the world trading system," Policy Research Working Paper Series 7661, The World Bank.
    6. Gulati Sumeet, 2010. "Price and Quantity Policies in a Simple Political Economy Framework," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-16, October.
    7. Minoru Nakada, 2020. "The impact of environmental tax revenue allocation on the consequence of lobbying activities," Economics of Governance, Springer, vol. 21(4), pages 335-349, December.

    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. Gulati, Sumeet, 2003. "The Effect Of Free Trade On Pollution Policy And Welfare," Working Papers 15849, University of British Columbia, Food and Resource Economics.
    2. Gulati, Sumeet, 2001. "The Effects of Choosing Free Trade on Endogenous Environmental Regulation and Welfare: A Model of Common Agency Government," 2001 Annual meeting, August 5-8, Chicago, IL 20449, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Anriquez, Gustavo, 2002. "Trade And The Environment: An Economic Literature Survey," Working Papers 28598, University of Maryland, Department of Agricultural and Resource Economics.
    4. Fünfgelt, Joachim & Schulze, Günther G., 2016. "Endogenous environmental policy for small open economies with transboundary pollution," Economic Modelling, Elsevier, vol. 57(C), pages 294-310.
    5. Stoschek, Barbara, 2007. "The political economy of environmental regulations and industry compensation," University of Göttingen Working Papers in Economics 65, University of Goettingen, Department of Economics.
    6. Joachim Fuenfgelt & Guenther G. Schulze, 2011. "Endogenous Environmental Policy when Pollution is Transboundary," Discussion Paper Series 14, Department of International Economic Policy, University of Freiburg, revised Feb 2011.
    7. 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.
    8. McAusland, Carol, 2008. "Trade, politics, and the environment: Tailpipe vs. smokestack," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 52-71, January.
    9. repec:got:cegedp:65 is not listed on IDEAS
    10. Sturm, Daniel & Ulph, Alistair, 2002. "Environment, trade, political economy and imperfect information: a survey," Discussion Paper Series In Economics And Econometrics 0204, Economics Division, School of Social Sciences, University of Southampton.
    11. Per G. Fredriksson & Xenia Matschke, 2016. "Trade Liberalization and Environmental Taxation in Federal Systems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 150-167, January.
    12. Olper, Alessandro, 2017. "The political economy of trade-related regulatory policy: environment and global value chain," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(3), February.
    13. McAusland, Carol, 2003. "Harmonizing Emissions Policy in Symmetric Countries: Improve the Environment, Improve Welfare?," University of California at Santa Barbara, Economics Working Paper Series qt4cj0392t, Department of Economics, UC Santa Barbara.
    14. Rauscher, Michael, 2001. "International trade, foreign investment, and the environment," Thuenen-Series of Applied Economic Theory 29, University of Rostock, Institute of Economics.
    15. Damania, Richard & Fredriksson, Per G. & List, John A., 2003. "Trade liberalization, corruption, and environmental policy formation: theory and evidence," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 490-512, November.
    16. Shinya Kawahara, 2014. "Endogenous Lobby Formation and Endogenous Environmental Protection with Unilateral Tariff Reduction," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 41-57, January.
    17. Roelfsema, Hein, 2007. "Strategic delegation of environmental policy making," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 270-275, March.
    18. Eliste, Paavo & Fredriksson, Per G., 2002. "Environmental Regulations, Transfers, and Trade: Theory and Evidence," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 234-250, March.
    19. Minoru Nakada, 2020. "The impact of environmental tax revenue allocation on the consequence of lobbying activities," Economics of Governance, Springer, vol. 21(4), pages 335-349, December.
    20. McAusland, Carol, 2005. "Harmonizing tailpipe policy in symmetric countries: Improve the environment, improve welfare?," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 229-251, September.
    21. Toke Aidt, 2004. "The rise of environmentalism, pollution taxes and intra-industry trade," Economics of Governance, Springer, vol. 6(1), pages 1-12, January.

    More about this item

    Statistics

    Access and download statistics

    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:wly:canjec:v:41:y:2008:i:3:p:817-837. 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: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1540-5982 .

    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.