Environmental regulation and international trade

Date of Completion

January 2006


Economics, Agricultural




In this dissertation, I explore two questions related to revisionist views of environmental regulations and trade. First, I explore the implications of more stringent standards when these standards both benefit and cost producers and consumers. Second, I empirically explore the impact of one major US environmental policy change in the pulp and paper industry on productivity and trade.^ In Part One, I discuss how a stricter labeling standard affects consumer welfare when the labeled goods markets in two countries are integrated, and how a bilateral tariff rate reduction affects consumer welfare. I discuss each issue under two different international trade models: a national product differentiation model and a monopolistic competition model. Different trade models do yield different results.^ The second question is related to the promulgation of the "cluster rule" for the US pulp and paper industry, implemented by the US Environmental Protection Agency in 1998. This stricter environmental regulation required US pulp and paper producers to invest large amounts of capital to bring themselves into compliance.^ I use data from five major categories of the US pulp and paper industry---newsprint, paperboard, printing and writing paper, sulfate pulp, and Kraft paper---to investigate if the change induced by the cluster rule improved the productivity of producers and impacted trade flows between the US and Canada.^ The empirical results show that the impact of the cluster rule on the US domestic sales price and the export price to Canada is negative and significant for the paperboard, printing and writing paper, and Kraft paper industries. ^ The US cluster rule increased Canadian imports of US paperboard, printing and writing paper, and Kraft paper products. However, the value of Canadian imports from the US increased only for paperboard and Kraft paper products, while the value decreased for printing and writing paper products because the own-price elasticity of import demand from the US to Canada is less than one for that industry. For US imports from Canada, the cluster rule decreased the value of trade flows in printing and writing paper and Kraft paper products. ^