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Oxford Economic Papers 2003; 55:25-35
Copyright © 2003 Oxford Universty Press

Article

Does tighter environmental policy lead to a comparative advantage in less polluting goods?

Swee Chua

Oxera Consulting Ltd, Blue Boar Court, Alfred Street, Oxford OX1 4EH, UK swee.chua{at}oxera.co.uk

Abstract

A two-factor model is developed to analyze the effects of environmental policy on patterns of comparative advantage. A pollution tax affects goods' prices via: (1) the tax burdens on each good, which depend on their respective polluting tendencies; and (2) changes in factor returns due to increased abatement activity. The good intensive in the factor whose returns have risen will tend to face a price increase, ceteris paribus. The net outcome depends on both effects. A higher tax will not always raise (lower) the autarky price of the more (less) polluting good. Therefore a country with the higher (lower) tax does not always have a comparative advantage in the less (more) polluting good.


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