Policy-Induced Environmental Technology Transfer

We investigate how environmental and trade policies affect the transfer of environmental technology in a two-country model with global pollution. By comparing free trade and tariff policy without commitment, the following results are obtained. First, the existence of an environmental policy in a local country induces technology transfer from a foreign country. Second, there is a possibility that free trade is preferable to a tariff policy for both countries even though free trade lowers the environmental tax rate. Third, the quantity of the local firm fs product decreases for higher environmental damage. On the other hand, import of environmentally efficient goods from the foreign country increases.