OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Trade and Pollution Linkages

Piecemeal Reform and Optimal Intervention

Linkages between international trade and the domestic environment are receiving intensified scrutiny by researchers and policy makers alike. This is especially the case in developing countries, where trade can be a significant agent of change and growth. While trade policies are increasingly oriented toward lower levels of intervention, interventionist policies are increasingly being implemented to correct for negative environmental externalities. In such a situation, the interactions between the two can be complex and challenging for policy makers.

This paper explores second-best policy issues affecting trade and environmental linkages. We derive optimum policy interventions and sufficient conditions for welfareimproving piecemeal trade and environmental policy reforms in a small economy. Pollution originates in both domestic consumption and production and is a domestic public bad. Production pollution can be abated by decreasing output and/or decreasing effluent rates per unit of ...


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