Is There a Trade-Off Between Trade Liberalization and Environmental Quality? A CGE Assessment on Thailand

Abstract

This article explores the question of whether there is a trade-off between trade liberalization and environmental quality. Using a computable general equilibrium framework, the author examines the economic, environmental, and welfare impacts of alternative policy scenarios, including a tariff reduction scenario, a carbon tax scenario, and a combined trade and environmental reform scenario. The results of the analysis, in the case of Thailand, show that if the country were to pursue greater trade liberalization alone without a concomitant increase in pollution abatement, there is a modest but real risk that it will become more specialized in dirty activity. If the country pursued pollution abatement without further trade liberalization, the cost in terms of growth does not appear to be significant. When environmental and trade policies are jointly considered, greater substitution away from the polluting energy inputs is observed with the cost on economic growth remaining insignificant.