Date of Award

Fall 1993

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

First Advisor

Bruce T Elmslie

Abstract

The essays in this dissertation examine the implications of a country's use of the environment for its trade patterns. The first essay provides the foundation for the empirical analysis conducted in the second essay. The first essay examines empirical research in Heckscher-Ohlin trade theory with the intent of establishing the limits of the theory and some reasons for its lack of empirical support. The essay concludes that Heckscher-Ohlin is a specialized theory of trade flows between countries with similar endowments and which are at similar stages of development. The explanation for the poor empirical performance lies in applications of the model which have instead used groups of very diverse nations.

The second essay discusses an empirical application of the Heckscher-Ohlin-Vanek model to a group of similarly endowed and developed countries. The specification of the model also expands the list of traditional factors of production considered to include the environment. The empirical analysis shows that even in a setting that appears to better fit the assumptions of Heckscher-Ohlin theory, rather than exports being of products using a country's more abundant factors, the Leontief paradox is confirmed in which exports are of products using a country's more scarce factors. The model does not support a significant role for the environment with respect to trade flows, but the environment variable is shown to influence the results obtained.

The third essay considers the literature on dynamic comparative advantage and develops a theoretical model that incorporates the impact of the environment over time. The model demonstrates that as increasing pollution destroys the productivity of labor, trade in a world of two countries declines with decreasing productivity advantages until it ceases altogether. As environmental quality is degraded, international economic activity grinds to a halt. This result is reached by considering the environment in a dynamic setting where the full implications of pollution can be expressed. The contribution of this dissertation is the description of a research agenda for the analysis of the impact of the environment on trade flows in a dynamic setting.

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