Academic journal article Journal of Agricultural and Applied Economics

Global Demand for U.S. Environmental Goods and Services

Academic journal article Journal of Agricultural and Applied Economics

Global Demand for U.S. Environmental Goods and Services

Article excerpt

This paper reports import demand elasticities for environmental goods and services (EGS) for the world in aggregate and for six world regions. The paper involves a pooled cross-section and time-series estimation procedure and makes per capita demand for EGS a function of economic, political, and structural factors. The results show that per capita incomes, exchange rates, political and economic freedoms, and debt affect the demand for EGS. The results also show that demand for EGS is tied to the particular environmental problem facing a particular region. Exporters of EGS need to disaggregate world markets to better target products.

Key Words: demand elasticities, environmental goods, international trade

JEL Classifications: F18, F14

There is considerable public debate concerning the relationship between trade and the environment. Some have argued that countries may lower domestic environmental standards in an effort to give their domestic firms a competitive edge in a liberalized world trade regime (French). Others see complementarities between trade and the environment and the possibility of adapting cold war-driven technology to develop materials that solve some of the most pressing problems (disease, food and fiber, hunger, peace) facing mankind (National Science and Technology Council). The development and trade in environmental goods and services (EGS) is central in this latter debate. Former Vice-President Al Gore, an early proponent of this view, recommended the establishment of a "Global Marshall Plan" for environmental protection and to promote U.S. EGS industries (Gore). However, the EGS sector of the economy is quite complex and little is known about the market. There is a need for research information as input in public policy making to support U.S. EGS firms in the global marketplace.

This paper reports global demand elasticity estimates for U.S. EGS. Demand elasticity estimates help identify those regions of the world where expenditures of additional marketing resources are most likely to yield the highest benefit in terms of improving the competitive position of U.S. firms in the global EGS market. The next section of the paper defines the EGS market and identifies the key "demand drivers." It also discusses the structure and performance of the market, including brief backgrounds of world regions and their EGS markets. The model, hypothesis, and data sources use the demand drivers previously identified to formulate statistical regional demand equations that are estimated using secondary data. The different demand elasticity estimates are used to draw conclusions for U.S. trade policy and ways of improving the competitive position of firms in the global environmental goods market.

Scope of the EGS Market

Defining the EGS Industry

The EGS market, or more generally the 'environmental technology' market, is defined by those environmental technologies that "advance sustainable development by reducing risk, enhancing cost-effectiveness, improving process efficiency, and creating products and processes that are environmentally beneficial or benign" (U.S. Department of Commerce). A European Union (EU) Commission adopts the Organisation for Economic Co-Operation and Development (OECD)TEurostat definition of the eco-industries, and defines the environmental technology market as "all activities which produce goods and services to measure, prevent, limit, minimize, or correct environmental damage to water, air, and soil, as well as problems related to waste, noise, and ecosystems" (Commission of the European Communities). The Trade and Industry Outlook Report identifies water supply and treatment, solid waste management, air pollution control, and environmental cleanup as the four main segments of the industry.

Structure

Measures of the size of the market depend on who is doing the measurement, and especially what is being counted as an environmental good or service. …

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