Cooperation Studies

Abstract: This paper extends Haibara (2006) in order to focus on the welfare consequences of foreign aid and pollution taxes in the context of trade liberalization and public abatement. The main finding is that trade liberalization achieved by a tariff reduction increases, under certain conditions, the optimal value of foreign aid and pollution taxes. This implies that trade liberalization is compatible with environmental protection achieved through pollution taxes and foreign aid, given the existence of public abatement. In the case of environmental protection, it is widely known that both the private and public sectors undertake pollution abatement activities. In this context, pollution abatement undertaken by the private sector is called as private abatement, while that undertaken by the public sector is known as public abatement1. Notable examples of these activities are the environmental funds established by some transitio