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Free trade and the greening of domestic industry

Published online by Cambridge University Press:  28 May 2014

Sumeet Gulati  and
Devesh Roy
Sumeet Gulati
Affiliation:
Food and Resource Economics, University of British Columbia, #341-2357, Main Mall, Vancouver, BC, CanadaV6T 1Z1. Tel: (604) 822-2144. E-mail: [email protected]
Devesh Roy
Affiliation:
International Food Policy Research Institute, Washington, DC, USA. E-mail: [email protected]
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Abstract

In this paper we present an example where a domestic import-competing industry can benefit from a pollution tax borne by its consumers. We show that this pollution tax can be similar to a traditional trade barrier (such as a tariff) and can raise the price received by the domestic industry. Given an open economy, we highlight conditions under which domestic producers prefer a higher consumption-based pollution tax than is socially optimal. In contrast, when the economy is closed, we find that producers prefer a pollution tax that is lower than socially optimal. Domestic producers turn ‘green’ only when faced with import competition.

Type
Research Article
Information
Environment and Development Economics , Volume 20 , Issue 1 , February 2015 , pp. 1 - 19
Copyright
Copyright © Cambridge University Press 2014 

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