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Chapter 26: Environmental Policy in Open Economies
Michael Rauscher * 1. Introduction In the 1970s and early 1980s, environmental economics was concerned mainly with the regulation of environmental externalities in closed economies. At that time, only very few authors looked at the interactions of environmental policies and international trade, for example, Baumol (197 l), Markusen (1979, Pethig (1976), Siebert (1977, 1979), Siebert et al. (1980), and McGuire (1982). Recently, the interest in this area of research has been revived, for at least two reasons. On the one hand, the rapid growth of international trade and the ratification of new trade agreements (for example NAFTA) and the deepening of existing ones (such as the Maastricht Treaty) have increased the economic interdependences of countries. Industry lobbies fear that tight environmental standards undermine the competitiveness of their products in international markets. Environmentalists are worried that pollution-intensive industries might migrate to pollution havens and that a race for the bottom in environmental regulation will be started. On the other hand, the global dimension of environmental disruption has become an issue of increasing concern and this had not been considered in most of the early models. The revival of the tradeand-environment debate has produced a large number of publications. Major contributions are Merrifield (1988), Krutilla (1 991), Anderson and Blackhurst (1992), Esty (1994), Copeland and Taylor (1994), Ulph (1996), and Rauscher (1994, 1995, 1997). See also Chapters 27-30. This survey is organized as follows. The next section discusses how environmental policies affect the patterns of trade. Then I shall address the issue of...
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