Transcript Session 13 - Chiang Mai University

Session 13
Trade and the Environment
Two Different Effects of Trade
toward the Environment
1.The larger size of the economy leads to more pollution,
when other thing equal.
1.The higher income can lead to more pressure on government
to enact tougher environmental protection policies
Three Basic Patterns
on International Trade and Environment
1. Environmental harm declines with rising income per person.
2. Environmental harm rises with rising income per person.
2. The relationship is an inverted U.
This pattern is mostly found
in the developing counties
The reason behind this
is base on the H-O theory;
as the world moves toward
freer trade, production of
capital – and – skill intensive
products expands in the
developed countries and
shrinks in the developing
country.
This pattern is mostly found
in the developed counties
The reason behind this
is base on the H-O theory;
as the world moves toward
freer trade, production of
capital – and – skill intensive
products expands in the
developed countries and
shrinks in the developing
country.
This pattern is mostly found
in the undeveloped counties
The demand for better
environment is weak at first
as the people are willing to
accept some environment
harm to increase income.
But at some point at which
the dire effects of poverty
have been reduce enough,
the demand for better
quality becomes more
forceful.
Types of Externalities
and Production-market Prescriptions
Trade and Domestic Pollution
Increased Producer Surplus
Sd+ $0.30
World Price
(with Trade)
Net Gain
Sd
Without Trade
Decreased Consumer Surplus
Dd
Export
Import
Decreased External Cost
MEC
Increased External Cost
Tran-border Pollution
German’s marginal
benefits from dumping
waste in the river
Marginal Costs of waste
dumping
(loss of river services in Austria)
“Optimal amount of pollution”
(This is because both country share the
different kind of benefit)
How can Austria enforce German to produce
at this point ?
Global Environmental Challenges
Global Problems Need Global Solutions
Extinction of Species
Overfishing
CFCs and Ozone
Greenhouse Gases