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Trade Sanctions and Green Trade Liberalization

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  • Alireza Naghavi

Abstract

This paper studies the impact of a WTO withdrawal of trade concessions against countries that fail to respect globally recognized environmental standards. We show that a punishing tariff can be effective when environmental and trade policies are endogenous. When required standards lie within a reasonable range, compliance along with free trade as a reward is the unique equilibrium outcome. A positive optimal tariff in the case of non-compliance prevents pollution-motivated delocation, but only works as a successful credible threat and does not emerge in equilibrium. Results are consistent with broad empirical evidence that disputes the pollution haven hypothesis and suggests capital movements to be non-pollution related.

Suggested Citation

  • Alireza Naghavi, 2008. "Trade Sanctions and Green Trade Liberalization," Center for Economic Research (RECent) 011, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
    • Handle: RePEc:mod:recent:011
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    References listed on IDEAS

    as
    1. J. Peter Neary, 2004. "Europe on the Road to Doha: Towards a New Global Trade Round?," CESifo Economic Studies, CESifo Group, vol. 50(2), pages 319-332.
    2. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    3. Javorcik Beata Smarzynska & Wei Shang-Jin, 2003. "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-34, December.
    4. Jean-Marie Grether & Jaime de Melo, 2004. "Globalization and Dirty Industries: Do Pollution Havens Matter?," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 167-203, National Bureau of Economic Research, Inc.
    5. Conconi, Paola & Perroni, Carlo & Riezman, Raymond, 2008. "Is partial tax harmonization desirable," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 254-267, February.
    6. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    7. Alistair Ulph & Laura Valentini, 2001. "Is Environmental Dumping Greater when Plants are Footloose?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 673-688, December.
    8. repec:bla:scandj:v:103:y:2001:i:4:p:673-88 is not listed on IDEAS
    9. Barrett, Scott, 1997. "The strategy of trade sanctions in international environmental agreements," Resource and Energy Economics, Elsevier, vol. 19(4), pages 345-361, November.
    10. repec:bla:scandj:v:99:y:1997:i:2:p:241-59 is not listed on IDEAS
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    Cited by:

    1. Kendall Houghton & Helen Naughton, 2017. "Trade and sustainability: the impact of the International Tropical Timber Agreements on exports," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(6), pages 755-778, December.
    2. Noha Elboghdadly & Michael Finus, 2022. "Strategic climate policy with endogenous plant location: The role of border carbon adjustments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1266-1309, December.

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    More about this item

    Keywords

    Environmental Policy; WTO; Delocation; Tariffs; Credible Threat;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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