Implications of the Theoretical
This final chapter of this book summarizes the general findings of the theoretical inquiry and attempts to derive some policy implications. In the previous chapters a large number of results have been derived from different models some of which have been very specialized. These many results add up to a more general perspective on the links between international economic relationships and the environment and on the problems associated with these links. After the summary of the main findings, policy implications of the theoretical analysis will be discussed. This will be done in two parts. The first part is devoted to policies, i.e. the determination of emission taxes, tariffs, and interventions into capital markets. The second part deals with institutions that define the frameworks in which trade and environmental policies are made. We look at national institutions and at supranational ones. In particular, we will be interested in how the delicate issue of green trade conflicts can be settled in the framework of international trade and environmental agreements.
The general conclusion from the previous analyses is that second-best considerations are essential for an understanding of the links between trade and environmental policies. A first-best world would be characterized by Pigouvian environmental policies that internalize all environmental externalities and by unrestricted trade and factor movements. This ideal state of the world may serve as a benchmark to which the second-best results can be compared. All results that are not pro-free-trade or that state the optimality of non-Pigouvian environmental policies are based on the existence of distortions. With the first best in mind, one will find it easier to identify the distortions that are responsible for deviations from the ideal environmental or trade policies.
The results that have been established on the direction of foreign trade and factor movements are hardly surprising. A distinction has been made between the