an open economy model of the effects of unilateral environmental policy by a large developing country abstract in this paper we pose the following question why is it that despite the universal recognition of the need for global environmental protection developing countries have been lax in instituting stringent environmental regulations addressing this question from an economic standpoint we show that there are plausible theoretical circumstances in which a large developing country can be worse off if it chooses to implement environmental policy in an uncoordinated fashion the empirical dimension of this question is stressed and the key parameters such as elasticities and marginal propensities to consume which are germane to any policy discussion regarding this issue are identified second we study once again from the perspective of a large developing country the possibility of using the domestic tax structure optimally to attain environmental policy objectives in a second best environment this scenario involves taxing pollution indirectly by using product taxes finally keeping the empirical dimension of the question in mind we show how to compute optimal externality correcting taxes these taxes are primarily a function of different kinds of elasticities

reforms of environmental policies in the presence of cross border pollution and public private clean up we construct a two country model where pollution from production is transmitted across borders pollution abatement is undertaken by both private producers and the public sector we characterize nash optimal levels of the policy instruments in the two countries emission taxes and funds allocated for public abatement activities we examine the implications of a number of multilateral policy reforms one of our findings is that the magnitude of the beneficial effect of a reform depends on the scope of the reform if it is restricted to a subset of policy instruments then the efficacy of environmental policy reform can be greatly undermined

a general equilibrium analysis of the insurance bonding approach to pollution threats abstract this paper sheds additional light on the important issue of toxic accidental releases or spills the pollution control literature contains relatively little discussion of accidental releases even risk assessments are more about the risks to the public of predictable continuous emissions than about the risk of major accidents because spills of stored and transported chemicals are not continuous or even inevitable analogs of economic incentive approaches like emissions fees and transferable pollution allowances are inappropriate allowances are inappropriate because potential spills are often too harmful to allow and a fee large enough to pay for clean up and damages is beyond the means of many potential sources the accidental release threat suggests an approach analogous to automobile liability insurance since a car can do more damage than most people can afford to pay for states mandate insurance to ensure financial responsibility some potential sources of harmful spills are already required to demonstrate financial responsibility and more could be insurance is one option for meeting financial responsibility requirements in many cases the only viable option to develop testable hypotheses and determine where traditional partial equilibrium analyses would probably be misleading the paper compares a very basic insurance bonding approach to the traditional command and control approach in a general equilibrium setting that allows a comparison of effectiveness and impacts on output levels prices and factor returns

can cross border pollution reduce pollution we develop a two country model of foreign aid and cross border pollution result ing from production activities in the recipient country there is both private and public abatement of pollution the latter being financed through emissions tax revenue and foreign aid we characterize a nash equilibrium in which the donor country chooses the amount of aid and the recipient chooses the fraction of aid allocated to pollution abatement and the emission tax rate at this equilibrium an increase in the donor s perceived rate of cross

regulation factor rewards and international trade this paper develops an approach for incorporating regulation into the theory of production distribution and trade using environmental regulation as an example four major conclusions emerge in the course of the analysis 1 production process regulation is equivalent in its effect on other cooperating factors to neutral technical regress i e negative progress 2 specific unambiguous income redistribution consequences follow from such regulation if commodity prices are held constant the factor used relatively intensively in the non regulated industry will gain absolutely in terms of both goods 3 unilateral or uncoordinated regulation destroys the link between uniform world commod ity prices and identical factor proportions factors prices across trading countries or regions 4 if any factor of production is freely mobile across frontiers the least differential regulation as between countries will entirely drive out the regulated industry from the more to the less regulated economy

firm specific impacts of co2 prices on the stock market value of the spanish power industry abstract european union carbon emissions allowances eua price fluctuations can affect electricity companies stock market values as these oscillations may change firms profitability and thus investors decisions this outcome can differ not only contingent on the eu ets phase but also on firms generation mix moreover stock markets may react differently to eua increases in comparison to decreases thus asymmetrically by using daily data from january 2008 to july 2014 this article analyses long run equilibrium relations and short run interactions between the aggregated electricity industry stock market returns and eua price changes moreover we test if the relationship between eua price variations and electricity stock returns is asymmetric and if the carbon price effect and the asymmetry are power firm specific adding to earlier studies we initially provide an inspection of the individual impact of eu ets phase ii and on going phase iii followed by a comparative analysis between power firms which core activity relies on renewable energy sources and those whose sources are fundamentally non renewable ones a statistically significant positive long run impact of eu ets on the aggregated power sector stock market return is found concerning phase ii and works asymmetrically moreover evidence is provided demonstrating that asymmetry and eua effects are power firm specific

international trade and environmental quality a survey abstract international trade has been incorporating various aspects of environmental issues since 1970 the extent to which environmental problems might affect many facets of trade or vice versa has been the subject of considerable debate over these years in this article we have attempted to establish some of the links between international trade and environmental quality by performing a comprehensive literature review we discuss issues such as establishing direct and indirect effects of international trade on environmental quality effects of trade on economic development environmental quality and energy and their relation with each other and finally the role of governments and international organizations in this context studies have so far revealed some linkages between trade and environment through conventional trade theory however interactions between international trade and types of pollution their sink and assimilative capacity need to be analyzed using a general equilibrium approach currently very little knowledge and agreement on the nature of interactions between trade theories development process and environmental quality exist existing studies have shown that the structure of environmental regulations should be modified to reflect the existence of trade under imperfect competition therefore further research on the interaction between new trade theory and environmental regulation is needed also theoretical and quantitative analysis regarding the effects of environmental regulations on competitiveness and location decision is needed the intensity and type of environmental measures vary across issues and countries therefore harmonizing environmental measures creates an inefficient atmosphere and to assume that trade restrictions will either improve or reverse the environmental damages is a serious mistake given the dynamic and intricate nature of the problem trade and environment debate continues despite vast research and poses a challenge for researchers and policy makers in the foreseeable future

competition in regional environmental policies when plant locations are endogenous abstract a two region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level production of the good causes local pollution the firm decides whether to maintain plants in both regions serve both regions from a single plant or shut down if the disutility of pollution is high enough the two regions will compete by increasing their environmental taxes standards until the polluting firm is driven from the market alternatively if the disutility from pollution is not as great the regions will usually compete by undercutting each other s pollution tax rates

the enlargement of the european union effects on trade and emissions of greenhouse gases abstract with the gradual accession of various central and eastern european countries ceecs to the european union eu international trade between the eu and the ceecs will change as a result of trade liberalisation and the mobility of production factors within the eu the eu and most of the ceecs have already committed themselves to reduce by 2008 2012 their emissions of greenhouse gases ghgs by 8 compared to the 1990 level this paper reports on an investigation of the potential consequences of the enlargement of the eu and of the emission reduction target set by the kyoto protocol on the sectoral production patterns and international trade a comparative static general equilibrium model was developed to examine the impacts under different scenarios for illustrative purposes two regions the eu and the ceecs and three categories of goods and services agricultural goods industrial goods and services were included the model was calibrated by the 1998 data the model was subsequently applied to study the effects of free trade the mobility of factors and the environmental constraints on production and international trade in light of the enlargement of the eu we show that in this specific context free trade is beneficial to economic welfare and does not necessarily increase emissions of greenhouse gases the mobility of factors also increases economic welfare but in the case of fixed production technology it may harm the environment through more emissions of ghgs

on the possibility of attaining environmental and trade objectives simultaneously with the greening of political debate around the world large nations precluded from using trade instruments explicitly have become aware of the fact that they can manipulate their domestic tax structure to attain environmental and trade objectives simultaneously in this note we show how such nations can attain these two targets with one instrument specifically we show how to construct dual purpose taxes we then focus on the empirical determinants of these taxes

inflation expectations real rates and risk premia evidence from inflation swaps this paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short term real interest rate expected inflation inflation s central tendency and four volatility factors that follow garch processes we derive analytical solutions for nominal bond yields yields on inflation indexed bonds that have an indexation lag and the term structure of expected inflation unlike prior studies the model s parameters are estimated using data on inflation swap rates as well as nominal yields and survey forecasts of inflation the volatility state variables fully determine bonds time varying risk premia and allow for stochastic volatility and correlation between bond yields yet they have small effects on the cross section of nominal yields allowing for time varying volatility is particularly important for real interest rate and expected inflation processes but long horizon real and inflation risk premia are relatively stable

toward a new conception of the environment competitiveness relationship accepting a fixed trade off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress studies finding high environmental compliance costs have traditionally focused on static cost impacts ignoring any offsetting productivity benefits from innovation they typically overestimated compliance costs neglected innovation offsets and disregarded the affected industry s initial competitiveness rather than simply adding to cost properly crafted environmental standards can trigger innovation offsets allowing companies to improve their resource productivity shifting the debate from pollution control to pollution prevention was a step forward it is now necessary to make the next step and focus on resource productivity

futures prices as risk adjusted forecasts of monetary policy many researchers have used federal funds futures rates as measures of financial markets expectations of future monetary policy however to the extent that federal funds futures reflect risk premia these measures require some adjustment in this paper we document that excess returns on federal funds futures have been positive on average and strongly countercyclical in particular excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business cycle indicators such as treasury yield spreads and corporate bond spreads excess returns on eurodollar futures display similar patterns we document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy we also show that risk premia matter for some futures based measures of monetary policy shocks used in the literature

footloose and pollution free in numerous studies economists have found little empirical evidence that environmental regulations affect trade flows in this paper we propose and test several common explanations for why the effect of environmental regulations on trade may be difficult to detect we demonstrate that whereas most trade occurs among industrialized economies environmental regulations have stronger effects on trade between industrialized and developing economies we find that for most industries pollution abatement costs are a small component of total costs and are unrelated to trade flows in addition we show that those industries with the largest pollution abatement costs also happen to be the least geographically mobile or footloose after accounting for these distinctions we measure a significant effect of pollution abatement costs on imports from developing countries and in pollution intensive footloose industries

the impact of selected abatement strategies on transnational pollution the terms of trade and factor rewards a general equilibrium approach abstract widespread publicity of international conflict over transfrontier pollutants such as acid deposition and the november 1986 chemical spill in the rhine river has increased the public s awareness of the need to devise abatement strategies appropriate for transnational pollution this article develops a general equilibrium approach for analyzing the economic impacts of selected abatement strategies the model includes internationally mobile goods capital and pollution flows and flexible output and factor prices the general equilibrium approach provides policymakers with important information which is usually not revealed by a partial equilibrium approach that is demonstrated by applying the model to the north american acid deposition issue

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

economic integration and the environment effects on members and non members the paper analyses the effects of economic integration and national environmental policies in a three country world there are two factors of production an environmental good and capital which is internationally mobile two of the countries create an internal market this is modelled by a reduction in mobility costs this process of economic integration leads to a relocation of the factors of production the welfare effects of factor relocation are analysed for different types of environmental policies special emphasis is placed on the issue of international externalities such as transboundary pollution spill overs

inflation risk premia and risk adjusted expectations of inflation abstract the rate of swap contracts linked to inflation can be a poor measure of inflation expectations as it incorporates time varying risk premia by following an established approach we estimate inflation risk premia and construct risk adjusted measures of inflation expectations for the us and the euro area our results show that premia are negatively related to the business cycle and the volatility of the stock market increase with the maturity of the contract and are on average lower in the us than in the euro area

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

impact of electricity prices on foreign direct investment evidence from the european union in the course of recent years growing concerns over increasing energy prices have emerged in the context of maintaining europe s international competitiveness in particular rising electricity price differentials adversely affect firms total production costs and ultimately impact their investment decisions nonetheless electricity prices as locational determinants of foreign direct investment fdi have received little attention in the literature so far we address this gap by including electricity prices in the traditional framework of fdi analysis and examine the impact of price variation on net fdi inflows in countries of the european union eu we use a panel of 27 countries for a period of 2003 2013 and system generalised method of moments gmm as method of estimation the main findings of the paper confirm that besides tax rates unit labour costs and competitive disadvantage in secondary education also electricity prices contribute to eroding competitiveness of the countries yet the effect of electricity prices does not seem to be uniform across the eu in fact southwestern countries tend to be more adversely affected than north eastern both in the short and long run

capital market response to emission rights returns evidence from the european power sector prior studies on the distributional effects of the european union s emission trading scheme eu ets have so far only relied on supply and demand data empirical evidence from capital markets has been missing we address this gap and measure the ets s economic consequences using the expectations of investors towards the regulatory impact on firm value employing a multifactor model we show that returns on common stock of the largest affected industry power generation are positively correlated with rising prices for emission rights this implies that the market predicts that firms are not only able to pass on their share of the regulatory burden to customers but even achieve windfall profits by overcompensating for the costs

eu emission allowances and the stock market evidence from the electricity industry this paper constitutes to our best knowledge the first econometric analysis on stock market effects of the eu emission trading scheme eu ets our results suggest that eu emission allowance eua price developments matter to the stock performance of electricity firms eua price changes and stock returns of the most important european electricity corporations are shown to be positively related this effect does not work asymmetrically so that stock markets do not seem to react differently to eua appreciations in comparison to depreciations the carbon market effect is shown to be both time and country specific it is particularly strong for the period of eua market shock in early 2006 and differs with respect to the countries where the electricity corporations analysed are headquartered stock market reactions to eua volatility could not be shown

environmental regulations transfers and trade theory and evidence abstract this paper develops a theory of compensation of producers for the costs associated with environmental regulations we show that the existence of transfers can give counter intuitive effects of environmental policy on both output and trade flows in particular the compensation obtained by producers neutralizes the effect of environmental policy on output and consequently on trade flows this may help explain why previous empirical research has found weak evidence that environmental regulations affect trade patterns the theory is tested using agricultural sector data the evidence supports the hypothesis that environmental regulations and transfers are positively correlated

environmental policy when market structure and plant locations are endogenous abstract a two region two firm model is developed in which firms choose the number and the regional locations of their plants both firms pollute and market structure is endogenous to environmental policy there are increasing returns at the plant level imperfect competition between the home and the foreign firm and transport costs between the two markets at critical levels of environmental policy variables small policy changes cause large discrete jumps in a region s pollution and welfare as a firm closes or opens a plant or shifts production to from a foreign branch plant the implications for optimal environmental policy differ significantly from those suggested by traditional pigouvian marginal analysis

green lobbies and transboundary pollution in large open economies abstract we employ a common agency model of policy making to examine how green lobbies affect the determination of trade and environmental policies in two large countries that are linked by trade flows and transboundary pollution we show that the impact of green lobbying on environmental policy outcomes depends crucially on the prevailing trade regime cooperative or non cooperative on whether environmental agencies act in a unilateral or coordinated manner and on the size of the emission leakages and transboundary spillovers under free trade a unilateral increase in pollution taxes reduces domestic emissions at the cost of increased foreign emissions in this case if the emission leakages and the associated transboundary spillovers are large enough green lobbying can create a bias towards lower pollution taxes

estimating inflation risk premia using inflation linked bonds a review this paper provides an overview of studies that estimate the inflation risk premium using inflation linked bond ilb yields i categorize existing studies outline their research designs and compare their estimates for the inflation risk premium furthermore the importance of accounting for ilb illiquidity and an overview of existing ilb liquidity proxies are demonstrated a discussion of current literature developments such as the zero lower bound and an outline for future research directions conclude the paper

development trade and the environment which way now abstract in recent times environmental protection has emerged to occupy much of the center stage in discussions of economic development the fact that most if not all developing countries trade with each other has given the concept of environmental protection a distinctively international focus in this note i identify and discuss five of the most important themes in trade and the environment that are likely to impact developing countries in a significant manner in the future

the interface between environmental and trade policies last march i gave the frank paish lecture to the society under the title economic life in a greenhouse in my lecture i tried both to survey professional opinion as to some of the possible climatic implications of the greenhouse effect and also to draw out the economic consequences which might follow towards the end of my talk i made reference to some preliminary joint work with randy wigle 2 a colleague at wilfrid laurier university in canada on the global consequences of carbon tax schemes designed to limit and or reduce the build up of co2 emissions a key element underlying the greenhouse effect the written version of the lecture consciously does not reproduce the survey material which made up the first part of the lecture instead it elaborates on the issues raised towards the end it incorporates the work by randy wigle and myself and offers some thoughts on what seems to be a growing issue for the iggos namely the consequences for the international trading system of interactions between trade issues and both future global and current national environmental policies what follows emphasises that if they occur in the next few decades global policy responses3 carbon taxes tradeable permit schemes to environmental concerns will almost certainly have large economic effects among these are likely to be significant effects on trade patterns and trade volumes large interregional effects will also accompany such policies depending upon how such policies are implemented also the i99os may see a growing use of trade measures to achieve objectives set for environmental policies environmental policies towards such countries as brazil the philippines and others where deforestation is a concern may increasingly take the form of threatened trade sanctions unless compliance with global environmental policy objectives occurs 4