Trade pessimists vs technology optimists: Induced technical change and pollution havens

Sjak Smulders, C. di Maria

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Our paper focuses on the role of endogenous technology and technology spillovers in explaining cross country differences in pollution and the pollution haven effect of international trade. In our North-South trade model, technology is endogenously developed by the North and imitated by the South. Environmental regulators choose national environmental policies by trading off the income gains and the disutility from a rise in pollution. Differences in environmental stringency are entirely driven by differences in investment opportunities and distortions that follow from the difference in intellectual property rights protection. We show that without goods trade and in the
absence of technology subsidies, the North imposes more stringent environmental regulation than the South. When opening up to trade, the South experiences a rise in prices for pollution-intensive goods and tends to raise pollution as in a standard trade model. Induced technical change, however,
may reverse this pollution haven effect.
Original languageEnglish
Article number7
JournalAdvances in economic analysis and policy
Volume3
Issue number2
DOIs
Publication statusPublished - 2004

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Pollution havens
Pollution
Induced technical change
Investment opportunities
Intellectual property rights protection
Country differences
Environmental regulation
International trade
Income
Subsidies
Environmental policy
Technology spillovers
North-South trade

Keywords

  • pollution havens
  • endogenous technical change
  • international trade

Cite this

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Trade pessimists vs technology optimists: Induced technical change and pollution havens. / Smulders, Sjak; di Maria, C.

In: Advances in economic analysis and policy, Vol. 3, No. 2, 7, 2004.

Research output: Contribution to journalArticleScientificpeer-review

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AB - Our paper focuses on the role of endogenous technology and technology spillovers in explaining cross country differences in pollution and the pollution haven effect of international trade. In our North-South trade model, technology is endogenously developed by the North and imitated by the South. Environmental regulators choose national environmental policies by trading off the income gains and the disutility from a rise in pollution. Differences in environmental stringency are entirely driven by differences in investment opportunities and distortions that follow from the difference in intellectual property rights protection. We show that without goods trade and in theabsence of technology subsidies, the North imposes more stringent environmental regulation than the South. When opening up to trade, the South experiences a rise in prices for pollution-intensive goods and tends to raise pollution as in a standard trade model. Induced technical change, however,may reverse this pollution haven effect.

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