THE TRADE-INDUCED DEGRADATION HYPOTHESIS

This paper develops a simple two-sector dynamic model to examine the e ffectsof international trade when government policy regarding the envi ronment is short sighted, but still responsive to changes in income le vels and in the quality of the environment. We show that free trade ca n usher in a negatively reinforcing cycle of increased pollution, lowe r environmental quality, and lower real incomes. Such cycles are not p ossible in autarky. We link the potential for trade to cause 'large' e nvironmental consequences to the structure of tastes and technologies and the attributes of industrial pollution. (C) 1997 Elsevier Science B.V.