Introduction

Chapter 7 described how trade-environment theory has evolved. This chapter takes the next step and uses diagrammatic analysis to clarify and illustrate the linkages. The six cases, or models, are in the general equilibrium tradition and for the most part are extensions of the basic Ricardian and Heckscher-Ohlin (H-O) trade models. The general equilibrium approach has advantages and disadvantages. Its strong point is the emphasis on the interconnections among the parts of a system – in this case an open economy operating in an environmental-resource matrix. But this advantage comes with a price. Even a simplified system will have a rather large number of variables, and diagrammatic analysis, which helps us “see” interconnections and feedbacks, tends to become complex.

We believe it is desirable for students and policy makers to understand connections within an integrated system, but we recognize that not everyone will have patience to work through the rather complicated analytical diagrams in this Chapter. Therefore we start with a verbal description of the six cases, and present the general conclusions. Those readers with sufficient stamina are invited to a more thorough presentation in subsequent sections.

Summary of the Cases

As initially analyzed in Chapter 2, we continue to view the environment in its dual role: providing valuable services that are directly consumed – environment as a consumption good – and providing services as inputs to the production of conventional goods – environment as a producer good.