Environmental impacts of trade liberalization and increased international investments

I address environmental issues of trade and investment liberalization. In the first chapter, I adopt a political-economy approach with special-interest groups cum electoral competition to endogenize environmental policy when voters have some equity ownership in polluting firms. The political-economy approach is motivated by the fact that the environment is a commonly cited topic in election competition, and environmental policy is jointly determined by the lobby behavior of environmentalists and industrialists. In the equilibrium, among all local producer groups, only the producer group which has the largest total private ownership makes its campaign contribution and becomes politically active. When there is no abatement opportunity, key determinants of the environmental policy are the transboundary nature of pollution, the level of pollution disutility, trade barriers, foreign environmental policy, the number of firms in the politically active producer group, and equity ownership structures of polluting firms. Results when there is an abatement opportunity with abatement costs failing on fixed costs or marginal costs are also shown. For both the developed country (the source country of international investments) and the developing country (the recipient country of international investments), environmental consequences of increased trade liberalization, increased inward (or outward) international investments, increased public ownership of pollution-intensive firms, and increased local equity participation requirement imposed on multinationals are presented. In the second and third chapter, I adopt a framework featuring vertical connection between polluting sectors. This framework is motivated by prevailing industry characteristics such as chains of production and different vertical connections between upstream and downstream sectors in pollution-intensive industries like petrochemical and chemical industries. The key determinants of eco-dumping possibility in free-trade economies are whether the upstream market is segmented or integrated, types of vertical connections between upstream and downstream segments, the output ratio in vertically-related segments, and the difference in marginal profits in two segments