International Trade, Factor Movements, and the Environment

By Michael Rauscher | Go to book overview

5
International Trade in Final Goods: The Case of Perfect Competition

5.1 Introduction
As has been shown in the previous section, trade in toxic waste can be dealt with in a one-sector model. The consideration of trade in final consumable commodities requires a more general framework involving at least two goods. The present chapter uses such a model. International trade is explained by differences in the environmental resource endowments of different countries. In a first step, one may ask what determines the endowment of a country with environmental resources. This issue has already been addressed in Chapter 2, but it will be reconsidered here using a, more formalized approach. Moreover, one can look at the gains from trade: in which circumstances is it possible that increased environmental disruption offsets the traditional gains from trade? Finally, the question may be addressed whether it makes sense to use environmental policy to achieve trade-related economic policy objectives and whether this will result in a race to the bottom in the field of environmental regulation. Is ecological dumping compatible with optimizing behaviour?Basically, two kinds of trade model frameworks in which these issues can be addressed may be distinguished, the Ricardo-Viner model and the Heckscher- Ohlin model.1
In a Ricardo-Viner world some factors of production are sector-specific, i.e. they cannot be moved from one sector to the other. This model has been introduced into modern trade theory by Jones ( 1971) and Samuelson ( 1971) and it represents a short-run view of the economy. Structural change, i.e. a relocation of these factors of production, takes place only in the long run.
In the Heckscher-Ohlin model, all factors are mobile across the sectors of an economy. This model represents a long-run view since structural change usually is a matter of decades. The classic references are Heckscher ( 1919), Ohlin ( 1933), Samuelson ( 1948, 1949), and Stolper and Samuelson ( 1941).
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The classical one-factor Ricardian model will not be considered since its structure is too simple to capture the essential problems of the relationship between trade and the environment.

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