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Overview

Overview. Lessons about free trade and the environment Effects of free trade depend Consider all, not just selected, consequences of free trade Have MANY theories of how free trade harms or helps environment . Net effect matters. And evidence matters.

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Overview

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  1. Overview • Lessons about free trade and the environment • Effects of free trade depend • Consider all, not just selected, consequences of free trade • Have MANY theories of how free trade harms or helps environment. Net effect matters. And evidence matters. • "Not This NAFTA“: Free trade will happen but need not be completely free

  2. Using Excel for assignment • Questions on: • Reducing your data • Formulas • Combining your data • Graphing

  3. Free Trade and the Environment

  4. Free Trade is Happening

  5. Why free trade is happening:

  6. Per Worker Productivity This is a hypothetical example!

  7. Per Worker Productivity This is a hypothetical example!

  8. Closed Economy(protectionism, no trade, 2000 workers in each economy) This is a hypothetical example!

  9. Closed Economy(protectionism, no trade, 2000 workers in each economy) This is a hypothetical example!

  10. Open Economy(free trade, 2000 workers in each economy) This is a hypothetical example!

  11. Open Economy(free trade, 2000 workers in each economy) This is a hypothetical example!

  12. Why Productivity, Not Wages, Matters Wages are FAR lower in Mexico than in the US but still cheaper to build cars in the US because of the lack of mechanization in Mexico. This is a hypothetical example!

  13. Why Productivity, Not Wages, Matters To make it cheaper to build cars in Mexico rather than the US, wages must be SUFFICIENTLY lower in Mexico to offset the lack of mechanization there. This is a hypothetical example!

  14. Other Factors This is a hypothetical example!

  15. Free Trade and the Environment • Discussion of different causal pathways by which trade influences environmental quality • Some are positive, some are negative • We can only determine the size of each effect empirically, not theoretically. • So, whether NET effect of free trade on the environment is positive or negatives depends on the size and sum of each

  16. Free Trade and the Environment • Technique effects: competion more efficient resource use • Scale effects: lower costs  more resource use • Income effects: more wealth  demand cleaner envt • Composition effects: change in preferences • Increased taxes • Externalities uncorrected • Environmental standards up/down/both • Growth generally

  17. What conditions might we impose on Free Trade? • Countries involved must have internalized environmental costs and thereby priced resources correctly, otherwise, externalities are exacerbated • Sustainable scale of resource use – NOT all economic growth is good

  18. Free Trade and Environment • Lessons about free trade and the environment • Effects of free trade depend • Consider all, not just selected, consequences of free trade • Have MANY theories of how free trade harms or helps environment. Net effect matters. And evidence matters. • "Not This NAFTA“: Free trade will happen but need not be completely free

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