An Analysis of Economic Welfare under the Global Environment and International Trade

Abstract

There exist many studies on international trade theories incorporating environmental issues. Copeland and Taylor [2] (1999) used a two-country and two-sector model and investigated the pattern of trade and the gains from trade. They assumed that pollution generated from a manufacturing sector deteriorates the environment and lowers the productivity of an agricultural sector. They analyzed the case where the pollution is within a country. Unteroberdoerster [4] (2001), Benarroch and Thille [1] (2001) and Suga [3] (2002) extended the model to the case of transboundary pollution.In this paper, in a similar model to theirs, we consider the global environment which is affected by the pollution generated from the production activity of a manufacturing good in each country. Then, under the assumption that the productivity of an environmentally sensitive good (agricultural good) is influenced by the global environment differently between countries, we derive the following results. If the generating degree of pollution is low in a country where the agricultural production is more sensitive to the environment, both countries may lose from trade. On the other hand, if the generating degree of pollution is high in that country, there is a possibility that both countries gain from trade.