Development, Trade and Resources in Asia
Chapter 2: Analytical Approaches to the Trade–Environment Relationship
2.1 INTRODUCTION An economy making the move from autarky to international trade faces new prices based on valuations established in the world market rather than in the domestic economy alone. Engaging in trade thus results, in the typical case, in alterations in the allocation of resources to production and in the pattern of consumption. Trade also raises real income, and this may in turn induce further changes in the structure of production or consumption. Other changes, in policies, endowments, or technologies, may likewise contribute to the transformation of economic structure. Nearly all production processes – and many forms of consumption – generate environmental damage, whether this takes the form of emissions into air and water or the depletion or degradation of natural resources. Thus virtually any pattern of economic change generated by a shift from autarky to trade – or, more generally, by some change in a country’s exposure to international markets – may be expected to have environmental consequences. By their nature, many forms of environmental damage cannot easily be measured, let alone assigned monetary valuations; conventional measures of national income certainly do a very poor job of capturing them (WRI 1989). Therefore, a complete assessment of the welfare eﬀects of trade must strive to include the consequences of its impacts on the environment along with its eﬀects on utility derived from the consumption of marketed goods and services. In practice, however, measurement and valuation problems make it diﬃcult to aggregate the utility derived from consumption of marketed goods together...
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