Trade liberalisation and resource sustainability Public Deposited

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  • Traditional economic theory states that liberalising trade and moving to freer trade in conventional goods improves global welfare, as well as improving welfare in small countries. It also states that large countries only through the active use of their trade policies can maximise their welfare. However, these results are modified when trade in a renewable resource-based good without optimal management is liberalised, as overexploitation may follow. Welfare implications then depend on the size of the country on the world market, on the management system in place as well as on the use of it, on the countries status as importers or exporters, on the state of the fish stock, and on the type of fisheries. Based on this understanding as well as on the Brander and Taylor two-country, two-good model, this paper establishes a framework for discussing welfare implications of trade liberalisation in renewable resource-based goods such as fish. It is found that the welfare implication depends on the factors in a complicated context, which demands detailed knowledge of each market and each fishery. Therefore, a case study of European cod trade is provided and it is found that trade liberalisation, given the assumptions, would cause a long run welfare gain in a resource rich country with effective management, such as Iceland. The reason is that the price rise implying that consumption of the manufacturing good increases. In a resource rich country with conservative management, such as Russia, there would, given the assumptions, be no resource-caused welfare effect. This resource-caused effect is also absent in Norway, but is probably met by a negative effect through the disappearance of value added activities based on Russian imports. The long run welfare implication of liberalisation for a large importer with market power, like the EU, depends on whether the terms-of-trade welfare effect (probably negative) is offset by the resource-caused welfare effect (positive given the assumptions) and the localisation welfare effect (probably positive).
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  • Nielsen, Max. 2002. Trade liberalisation and resource sustainability. In: Proceedings of the Eleventh Biennial Conference of the International Institute of Fisheries Economics and Trade, August 19-22, 2002, Wellington, New Zealand: Fisheries in the Global Economy. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2002. CD ROM.
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