Environmental Regulations, Transfers, and Trade: Theory and Evidence

doi:10.1006/jeem.2000.1176

Journal of Environmental Economics and Management

Volume 43, Issue 2, March 2002, Pages 234-250

https://doi.org/10.1006/jeem.2000.1176 Get rights and content

Abstract

This paper develops a theory of compensation of producers for the costs associated with environmental regulations. We show that the existence of transfers can give counter-intuitive effects of environmental policy on both output and trade flows. In particular, the compensation obtained by producers neutralizes the effect of environmental policy on output, and consequently on trade flows. This may help explain why previous empirical research has found weak evidence that environmental regulations affect trade patterns. The theory is tested using agricultural sector data. The evidence supports the hypothesis that environmental regulations and transfers are positively correlated.

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^☆: We thank Torbjörn Becker, Cees van Beers, Peter Christoffersen, William Donnelly, Stratford Douglas, Jerry Fletcher, Robert Inman, Bruce Gardner, Noel Gaston, John List, Leo Maier, Lisa Segnestam, Ronald Steenblik, David Wheeler, participants at presentations at West Virginia University, the World Bank Conference “Trade, Global Policy, and the Environment,” Washington, DC, the CentER Workshop “Environmental Policy, Competitiveness and Locational Behavior of Firms,” Schiermonnikoog, The Netherlands, and the Southern Economic Association Meetings, Baltimore, for constructive discussions and comments on earlier versions of this paper, and the USDA for making data sources available. The two referees and the Associate Editor provided comments that led to a significantly improved final version. We also thank John Dixon for his support. Several of the theoretical results were (essentially) included in a paper (by the second author alone) presented at the EAERE Annual Conference at Tilburg University entitled “Why Don't Environmental Regulations Influence Trade Patterns?” Funding from the Swedish International Development Cooperation Agency (Sida) within the project “Trade, Macroeconomic Reform, and the Environment” and from the Department of Economics, University of Adelaide, is gratefully acknowledged. The opinions expressed are those of the authors and not necessarily those of the World Bank or Sida. The usual disclaimers apply.

^f1: [email protected]

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Regular ArticleEnvironmental Regulations, Transfers, and Trade: Theory and Evidence☆

Abstract

J. Public Econom.

J. Environ. Econom. Management

Resour. Energy Econom.

J. Environ. Econom. Management

J. Policy Modeling

J. Environ. Econom. Management

Eur. J. Polit. Econ.

Eur. J. Polit. Econ.

The Economic Theory of Agrarian Institutions

Freedom, growth, and the environment

Environ. Develop. Econom.

The Theory of Environmental Policy

A theory of competition among pressure groups for political influence

Quart. J. Econom.

Political institutions and international patterns of agricultural protection

Rev. Econom. Statist.

Menu auctions, resource allocation, and economic influence

Quart. J. Econom.

Political institutions and pollution control

Rev. Econom. Statist.

North-south trade and the environment

Quart. J. Econom.

Special-interest lobbying and endogenous commodity taxation

Eastern Econom. J.

Common agency and coordination: General theory and application to government policy making

J. Polit. Econ.

The Cash Croppers

The political economy of trade liberalization and environmental policy

Southern Econom. J.

Ratification of the 1992 climate change convention: What determines legislative delay?

Public Choice

Freedom in the World: Political Rights and Civil Liberties

Causes of U.S. farm commodity programs

J. Polit. Econ.

Environmental regulation and the competitiveness of U.S. agriculture

Protection for sale

Amer. Econom. Rev.

Environmental impacts of North American free trade agreement

Regular Article
Environmental Regulations, Transfers, and Trade: Theory and Evidence☆