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May/June 1992, 
Vol. 74, No. 3
Posted 1992-05-01

Environmental Protection and Free Trade: Are They Mutually Exclusive?

by Alison Butler

Alison Butler provides an introduction to the reasons for and the effects of domestic environmental policy. She then discusses the effects of environmental policy on international trade. Environmental policy, says the author, affects trade in two ways: either directly, through the price and amount of output produced of a traded good, or indirectly, through the effect of unwanted pollution transported across borders on relative prices, income and output in the affected country. The author highlights the difficulties of creating international agreements about the environment when countries have significantly different income levels or assimilative capacity to absorb pollution. The paper concludes with an examination of whether environmental policies are consistent with current international trade agreements.

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