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The Long-Run Effects of Environmental Reform in Open Economies

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  • Karp, Larry
  • Zhao, Jinhua
  • Sacheti, Sandeep

Abstract

We compare the short-run and long-run effects of environmental reform and harmonization under autarky and free trade. When trade is driven by environmental distortions rather than real relative advantages, harmonization of environmental policies, even if achieved by lowering standards in one country, can improve short-run aggregate welfare. With the possibility of multiple steady states, long-run considerations favor a \race to the top" rather than a \race to the bottom" even when upward and downward harmonizations are equivalent in the short run. For a country trapped in a low (or bad) steady state, environmental reform may not move it to a high (or good) steady state under autarky. However, under trade, harmonization of policies may enable this country to reach the high steady state. Conversely, reforms that increase the relative differences in distortions may, under trade, cause economies to move toalow steady state.

Suggested Citation

  • Karp, Larry & Zhao, Jinhua & Sacheti, Sandeep, 2000. "The Long-Run Effects of Environmental Reform in Open Economies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0bm6h9ct, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt0bm6h9ct
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    References listed on IDEAS

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    1. Karp, Larry & Sacheti, Sandeep & Zhao, Jinhua, 2001. "Common Ground between Free-Traders and Environmentalists," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 617-647, August.
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    Cited by:

    1. Karp, Larry, 2005. "Property rights, mobile capital, and comparative advantage," Journal of Development Economics, Elsevier, vol. 77(2), pages 367-387, August.
    2. Akihiko Yanase, 2010. "Trade, Strategic Environmental Policy, and Global Pollution," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 493-512, August.
    3. Erwin Bulte & Edward Barbier, 2005. "Trade and Renewable Resources in a Second Best World: An Overview," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(4), pages 423-463, April.
    4. Barbier, Edward B. & Bulte, Erwin H., 2004. "Introduction to the symposium on trade, renewable resources and biodiversity," Journal of Environmental Economics and Management, Elsevier, vol. 48(2), pages 883-890, September.
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    6. Mark T. Gibbs, 2016. "Applying the concept of State of Good Repair to the management of ecological infrastructure," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 59(6), pages 1091-1106, June.

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