Development, Trade and Resources in Asia
Chapter 3: Growth and the Environment in Developing Asian Economies
3.1 INTRODUCTION The analysis in Chapter 2 presented a decomposition of the aggregate eﬀects of trade on the environment, and expounded the fundamental methodology for general equilibrium analysis of economic and environmental phenomena in open economies. It was established, among other things, that among countries which are open to international trade, ‘shocks’ in the form of world price changes or changes in the degree to which a country is open to trade have general equilibrium eﬀects through changes in domestic product and factor prices. It follows that when diﬀerent sectors of an economy are associated with diﬀerent types and intensities of pollution or natural resource degradation, the environmental consequences of shocks that have diﬀerential sectoral eﬀects can only be traced through general equilibrium mechanisms. The models that yield these propositions provide general theoretical foundations for both positive and normative economy-wide analyses of environmental problems in open economies. However, they yield insights through a high level of abstraction, and as such have obvious drawbacks for exploring speciﬁc issues in a particular kind of economy. While the eﬀects of a shock can in principle be fully identiﬁed in the simplest cases, in the presence of both environmental and policy-related distortions it is in general impossible to make ﬁrm predictions about the eﬀects of a shock on welfare or the environment. Use of highly abstract models to address questions such as those regarding the relationship between trade, or trade policy reform, and the...
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