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Will Trade Liberalization Harm the Environment? The Case of Indonesia 2020

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  • Anderson, Kym
  • Strutt, Anna
Abstract
Most-favoured-nation (MFN) trade liberalizations will always improve global economic welfare provided globally optimal environmental, and other, policies are in place. But since the latter proviso is not met in practice, empirical studies of the environmental and resource depletion effects of such reforms are needed to convince sceptics that trade reform is still worthwhile. This paper provides a methodology for doing that. It is illustrated with a case study of Indonesia, a large newly industrializing country that is rich in natural resources and committed to taking part in major multilateral and regional trade liberalizations over the next two decades. A modified version of the global CGE model known as GTAP is used to project the world economy to 2010 and 2020 both with and without those reforms. An environmental module is attached to the Indonesian part of that global CGE model so as to measure the effects of changes in economic activity on air and water pollution. The proportional contributions to environmental indicators of changes in the level and composition of output, and changes in production techniques, are identified. A base case projection without trade reform is compared with alternative scenarios involving full global implementation of Uruguay Round commitments by 2010, and the additional move to MFN free trade by APEC countries by 2020. The study suggests that, at least with respect to air and water, trade policy reforms slated for the next two decades would in many cases improve the environment and reduce the depletion of natural resources and, in the worst cases, would add only slightly to environmental degradation – even without toughening the enforcement of existing environmental regulations or adding new ones, and even if the reforms stimulate a faster rate of economic growth.

Suggested Citation

  • Anderson, Kym & Strutt, Anna, 1998. "Will Trade Liberalization Harm the Environment? The Case of Indonesia 2020," CEPR Discussion Papers 1933, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1933
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    Cited by:

    1. Anderson, Kym & Strutt, Anna, 1999. "Impact Of East Asia’s Growth Interruption and Policy Responses: The Case Of Indonesia," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 125027, Australian Agricultural and Resource Economics Society.
    2. Damania, Richard & Fredriksson, Per G. & List, John A., 2003. "Trade liberalization, corruption, and environmental policy formation: theory and evidence," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 490-512, November.
    3. Coxhead, Ian, 2007. "A New Resource Curse? Impacts of China's Boom on Comparative Advantage and Resource Dependence in Southeast Asia," World Development, Elsevier, vol. 35(7), pages 1099-1119, July.
    4. Mai T. T. Tran & Christopher Gan & Baiding Hu, 2019. "Impacts of Trade Liberalisation on CO2 Emissions in Vietnam," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(3), pages 265-286, December.
    5. Saeed Solaymani & Mehdi Shokrinia, 2016. "Economic and environmental effects of trade liberalization in Malaysia," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 18(1), pages 101-120, October.
    6. Anriquez, Gustavo, 2002. "Trade And The Environment: An Economic Literature Survey," Working Papers 28598, University of Maryland, Department of Agricultural and Resource Economics.
    7. ADKINS Liwayway G. & GARBACCIO Richard F., 2010. "Simulating the Effects of the FTAA on Global Carbon Emissions: A General Equilibrium Analysis," EcoMod2003 330700000, EcoMod.
    8. Hakimi, Abdelaziz & Hamdi, Helmi, 2016. "Trade liberalization, FDI inflows, environmental quality and economic growth: A comparative analysis between Tunisia and Morocco," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 1445-1456.
    9. Harvey E. Lapan & Shiva Sikdar, 2017. "Can Trade Be Good for the Environment?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 267-288, April.
    10. Sonja Peterson, 2008. "Greenhouse gas mitigation in developing countries through technology transfer?: a survey of empirical evidence," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(3), pages 283-305, March.
    11. Bohringer, Christoph & Loschel, Andreas, 2006. "Computable general equilibrium models for sustainability impact assessment: Status quo and prospects," Ecological Economics, Elsevier, vol. 60(1), pages 49-64, November.
    12. Ghosh, Madanmohan & Rao, Someshwar, 2004. "Economic Impacts of a Possible Canada-U.S. Customs Union: Simulation Results From a Dynamic CGE Model," Conference papers 331192, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    13. Theodore Panayotou, 2000. "Globalization and Environment," CID Working Papers 53A, Center for International Development at Harvard University.
    14. Wang, Ying & Chen, Xiangyuan, 2020. "Natural resource endowment and ecological efficiency in China: Revisiting resource curse in the context of ecological efficiency," Resources Policy, Elsevier, vol. 66(C).
    15. Gumilang, Howard & Mukhopadhyay, Kakali & Thomassin, Paul J., 2011. "Economic and environmental impacts of trade liberalization: The case of Indonesia," Economic Modelling, Elsevier, vol. 28(3), pages 1030-1041, May.
    16. Coxhead, Ian A., 2002. "Development And The Environment In Asia: A Survey Of Recent Literature," Staff Papers 12650, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    17. Raihan, Selim & Khondker, Bazlul Haque, 2010. "Doha Round Impacts on India: A Study in a Sequential Dynamic CGE Framework," Conference papers 331969, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    18. Rae, Allan N. & Strutt, Anna, 2007. "The WTO, Agricultural Trade Reform and the Environment: Nitrogen and Agro-chemical Indicators for the OECD," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 8(1), pages 1-22.
    19. Hadjinikolov, Dimitar, 2010. "Глобалното Направление На Общата Търговска Политика На Ес В Началото На Новия Век [Global direction of EU common commercial policy at the beginning of the new century]," MPRA Paper 25244, University Library of Munich, Germany.
    20. Gang Li & Akihiko Yanase, 2022. "Trade, Resource Use and Pollution: A Synthesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(3), pages 861-901, November.
    21. Liu, Xianbing & Ishikawa, Masanobu & Wang, Can & Dong, Yanli & Liu, Wenling, 2010. "Analyses of CO2 emissions embodied in Japan-China trade," Energy Policy, Elsevier, vol. 38(3), pages 1510-1518, March.
    22. Ben Hammouda, Hakim & Karingi, Stephen N. & Oulmane, Nassim & Sadni Jallab, Mustapha, 2007. "Sensitive Products in Trade Negotiations: What Options for Africa," Conference papers 331595, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    Global CGE Model; Indonesia; Trade and Environment;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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