REM 621 TOPIC 16: TRADE AND ENVIRONMENT

1. REM 621TOPIC 16: TRADE AND ENVIRONMENT

2. Basic Trade Theory Concepts Absolute advantage - "with the same level of inputs a country can produce more of a given output than another country“ An example:

3. The Theory of Comparative Advantage Comparative advantage – "when the opportunity cost of producing something is less for one country relative to its competitors"  An example [Note: price of wheat & dairy is $2/unit]:

4. The Theory of Comparative Advantage • A country with an absolute advantage has a comparative advantage for products with the lowest opportunity cost of production

5. The Theory of Comparative Advantage • A country with an absolute disadvantage has a comparative advantage if the opportunity cost of producing a product is less than its opportunity cost for producing anything else and less than that of competing countries

6. Can countries benefit from trade? Gains from trade – “comparative advantage suggests that specialization of production and the resulting trade will increase the value of total output and, if trades are voluntary, be mutually beneficial.”

7. Gains From Trade: Reallocation of Production

8. Gains from Trade from the Uruguay Round, 1986 - 1994 (1992 US$ b/yr) Source: Martin & Winters 1996

9. Trade-related effects on the Environment • A scale effect, which imposes additional pressures on the environment (e.g. Perlman model) • A composition effect, involving changes in international specialization towards more-or-less natural resource intensive or polluting activities (e.g. agriculture and land degradation) • A technological effect from increased access to environmentally friendly technologies Gutman (2000)

10. West African Countries with High Export Concentration in Agricultural Export Commodities Source: Barbier (1988) Notes: (*) calculated in terms of percentage contributions of 33 most important commodities to value of total merchandise exports; (**) figures in brackets are contribution to value shown in second column

11. Vegetal Cover Factors for Erosion in West Africa Source: Roose (1977) a/ Measured per unit of erodability defined for a standard bare plot of soil

12. Issues in trade and the environment • Pollution haven hypothesis (e.g. Maquiladoras) • Porter hypothesis (text, p186) • Trade agreements and the environment (tuna?) • CITES and other international environmental agreements (2nd best?) • Globalization?

13. USA – Mexico Border Trade Over 11,500 Maquiladoras,, are located along the 2,100 mile border with the United States.

14. Final thoughts: Trade and Environment Pro Free Trade “Trade agreements and the resulting trade foster economic growth, which provides resources for environmental clean-up and can be designed to ensure environmental protection” Con Free Trade “Trade agreements and the resulting trade are harmful to the environment and society because free trade today primarily serves the profit-maximizing needs of multinational corporations and international financial capital, eroding or preventing local environmental protection, capital formation, political control and social development.”