This monograph is the result of several years of research on foreign trade and the environment. The subject attracted economic scientists for the first time in the mid-1970s and there was an extensive literature in this field at that time, but then came the oil crisis followed by periods of stagflation and unemployment. Subsequently, the scarcity of jobs and the slowdown of productivity were regarded as being more important than the scarcity of resources and the decline of natural capital. Only in recent years has there been a revival of environmental economics. Probably, this was fostered by the insight that environmental problems become increasingly global and that the standard prescriptions of economic theory may not work very well in this case. In this context, it is often argued that these environmental problems are aggravated--if not caused--by free trade and by the globalization of international commodity and factor markets. Therefore, it seems to be desirable to reconsider the relationship between international trade and the environment. Compared to the literature of the mid-1970s, two additional aspects have to be taken into account. One of them is the global nature of the environmental problems that are of predominant concern nowadays. The other one is the development in the international trade literature in the 1980s. Major achievements have been made by abandoning the assumption of perfect competition underlying the traditional models. Increasing returns to scale and imperfectly competitive market structures have been introduced and it has been shown that some of the policy implications of the traditional approach, that have in general been pro free trade, are altered dramatically. This new view on international trade may have important consequences for the evaluation of environmental polices in open economies and for the assessment of the whole subject of trade and the environment.
Before I start talking about negative externalities that constitute the environmental problem, I wish to mention the positive externalities that I have profited from during the time I was preparing the manuscript. I discussed my ideas with numerous colleagues and friends. Among those who contributed to this study with their remarks, suggestions, and critique are Kym Anderson, Claude D'Aspremont, Richard Baldwin, Ed Barbier, Scott Barrett, Elga Bartsch, Richard Blackhurst, Lans Bovenberg, Joanne Burgess, Carlo Carraro, Klaus Conrad, Henk Folmer, Horst Herberg, Arye Hillman, Michael Hoel, Sebastian Killinger, Gernot Klepper, Jean-Jacques Laffont, Karl-Göran Mäler, Petros Mavroides, Ernst Mohr, Rüdiger Pethig, Richard Portes, Jim Poterba, Jim Rollo, Günther Schulze, Albert Schweinberger, Horst Siebert,