International trade and environmental controls: Comment

Abstract

is sometimes useful to view environmental quality as a "good" whose production requires real resources employed in environmental damage avoidance activities1. Transformation functions relating levels of environmental quality and production of conventional goods can then be constructed, and environmental control (EC) costs are viewed as opportunity costs measured in conventional goods forgone. In this spirit Walter has attempted to show, using a modified HeckscherOhlin model with three goods (exportables, importables, environmental damage avoidance), the effects of EC activities on the pattern and volume of international trade. He concludes inter alia that assuming constant terms of trade between X and M goods, and a proportionate shrinkage of the production frontier between X and M as a result of drawing resources away from conventional goods into environmental damage avoidance activities, the production and consumption of tradables will decrease and the volume of trade will decline. Further, he argues that if EC itself is a capital intensive activity, and if the country is capital abundant in the Heckscher-Ohlin sense, the transformation function between X and M will shrink proportionately more for the X good. This leads to a major reduction in the volume of trade, reduced specialization, and smaller gains from trade. His analysis is described in Diagram i showing the initial transformation frontier XM, the proportionately shrunk function X'M', and the skewed shrinkage X'M", and the respective trade triangles (constant consumption proportions of X and M assumed)2.