The long-run effects of environmental reform in open economies

Karp, L.S., Zhao, J. and Sacheti, S. (2003) The long-run effects of environmental reform in open economies Journal of Environmental Economics and Management, 45, (2), pp. 246-264. (doi:10.1016/S0095-0696(02)00059-1).


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We compare the short- and long-run effects of environmental reform and harmonization under autarky and free trade. When trade is driven by environmental distortions rather than real relative advantages, harmonization of environmental policies, even if achieved by lowering standards in one country, can improve short-run aggregate welfare. With the possibility of multiple steady states, harmonization can improve long-run welfare, especially when the environment is fragile. Further, long-run considerations favor upward harmonization even when it is equivalent to downward harmonization in the short run. For a country trapped in a low (or bad) steady state, environmental reform may not move it to a high (or good) steady state under autarky. However, under trade, harmonization of policies may enable this country to reach the high steady state. Conversely, reforms that increase the relative differences in distortions may, under trade, cause economies to move to a low steady state.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/S0095-0696(02)00059-1
Keywords: trade and the environment, environmental policy reform, harmonization of environmental policies, environmental dynamics

ePrint ID: 39692
Date :
Date Event
Date Deposited: 29 Jun 2006
Last Modified: 16 Apr 2017 21:54
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