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Intra-industry Trade Liberalization and the Environment

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Abstract

This paper examines how trade liberalization affects national and global pollution in a multi-country model incorporating monopolistic competition and intra-industry trade as well as inter-industry trade. Each country produces skill-intensive differentiated goods and labor-intensive goods. Pollution is a by-product of production but pollution abatement can be undertaken. Regardless of country characteristics, if the differentiated-good sector is sufficiently cleaner (dirtier) then, without any change in environmental taxes, a multilateral reduction in import protection accorded to the differentiated good or to both goods typically leads to a decline (rise) in pollution in all countries. Pollution havens tend not to arise.

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