Resource management in fisheries under different types of externalities in a two-country general equilibrium model of international trade

Abstract

Open access resource problems and harmful pollutants from manufacturing activities are common in resource management practices. Nevertheless, their implications have only been studied in different and separate frameworks that are not covered within the same structure. Previous studies suggest that resource management enforced by one country can increase welfare levels and rebuild resource conservation, compared to the case where no country imposes resource management policies. However, in real-life examples, the harvesting and manufacturing industries exert simultaneous pressure on fishery resource stocks, thereby changing the nature of the supply curve of renewable resources. This study investigates the effects of trade liberalization under unilateral resource management regimes in a two-country, two-sector model, in which both production sectors can detrimentally affect renewable natural resources by generating two interacting environmental burdens: excessive harvesting and industrial pollution. It is demonstrated that unilateral resource management applied by a country in which the resource-good sector is relatively less damaging to fishery stocks is welfare-reducing for both countries compared to the situation where neither manages its resource sector. This result is identified as “immiserizing resource management.” Notably, however, unilateral resource management by one country in which the resource-good sector has a more significant negative impact than the manufacturing industry can benefit both trading partners in welfare terms; this is referred to as “improving resource management.” Policymakers in international organizations should consider the relative dominance of externalities in the presence of weak property rights before requiring resource management as a condition for participating in international trade.