Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88573
Authors: 
Gwatipedza, Johnson
Barbier, Edward B.
Year of Publication: 
2013
Series/Report no.: 
Economics Discussion Papers 2013-60
Abstract: 
Bilateral trade and capital flows have increased substantially between the United States and China yielding economic gains to both countries. However, these beneficial bilateral relations also bring about global environmental consequences including greenhouse gas emissions. We develop a footloose capital model of international trade between the North (United States) and the South (China) in the presence of a global pollution externality. Each country's share of global pollution depends on its share of world capital. We show that, if the disutility of pollution in the United States is high, there will be pressure on the US to raise environmental regulations on industry. Capital will move to China. Because the increased pollution in China has global effects, the US may not benefit from the environmental restrictions and a joint regulation of pollution by both parties may be a preferred outcome. We also show that the implementation of differential control policies by the parties may also be optimal.
Subjects: 
global pollution externality
agglomeration
environmental regulation
global warming
greenhouse gas emissions
JEL: 
D43
Q54
F18
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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