Environmental and Resource Economics: A Canadian Retrospective

B. Copeland and M. Scott Taylor

Canadian Journal of Economics, Forthcoming

This paper gives a brief overview of contributions to environmental and resource economics in Canada. We concentrate on work from the past 25 years, but we also highlight earlier pathbreaking work. Canadians have made fundamental contributions to many aspects of the field, especially in resource economics, nonmarket valuation, and international environmental economics. Our focus is on academic work by scholars in Canada,1 but we put this in the context of the development of the field internationally. Given space constraints, we cannot be comprehensive and so the review discusses big picture trends, along with a selective overview of leading contributions. We also had to limit the scope of the article and so do not cover energy economics and mainly consider fisheries when discussing renewable resource economics.


Should governments raise the taxes on energy in order to speed up the energy transition? The Canadian economist Professor M. Scott Taylor looks at the complex correlations between trade, environment and resources from a sound economic perspective.


Environmental Regulations and International Competitiveness: A Review of Recent Evidence

J. Cherniwchan, B. Copeland, and M. Scott Taylor

Preliminary; please do not cite. September 2013.

Presentation

In this paper, we provide an overview of the recent progress that has been made towards answering this question and outline our current understanding of how environmental regulations affect international trade through their impact on the competitiveness of the manufacturing sector. To do so, we review existing research, paying particular attention to the empirical challenges that have been faced in the literature thus far and assessing our progress in surmounting them. Empirical research on the effects of environmental regulations has faced several hurdles in identifying the causal effect of policy changes. The measurement of policy stringency and other data problems, and the endogeneity of policy itself make it difficult to assess the impact of regulation. We highlight the approaches that have been used to address these issues and discuss the advantages and disadvantages of each. We also highlight a set of important questions that remain unanswered, and provide suggestions for what data is needed to answer these questions and what approaches may help further our understanding.


The Green Solow Model

W. Brock and M. Scott Taylor

Journal of Economic Growth, Vol. 15, No. 2, June 2010, 127-153.

Green Solow Simulation

We argue that a key empirical finding in environmental economics—the Environmental Kuznets Curve (EKC)—and the core model of modern macroeconomics—the Solow model—are intimately related. Once we amend the Solow model to incorporate technological progress in abatement, the EKC is a necessary by product of convergence to a sustainable growth path. We explain why current methods for estimating an EKC are likely to fail; provide an alternative empirical method directly tied to our theory; and estimate our model on carbon emissions from 173 countries over the 1960–1998 period.


Economic Growth and the Environment: A Review of Theory and Empirics

W. Brock and M. Scott Taylor

Handbook of Economic Growth, eds. S. Durlauf and P. Aghion, 2005.

This paper reviews both theory and empirical work on economic growth and the environment. We develop four simple growth models to help us identify key features generating sustainable growth. We show how some combination of technological progress in abatement, intensified abatement, shifts in the composition of national output and induced innovation are necessary for sustainable growth, and then demonstrate how growth models employing any one of these mechanisms generate other potentially refutable predictions on abatement costs, pollution levels, or emission intensities.


Trade, Growth, and the Environment

B. Copeland and M. Scott Taylor

Journal of Economic Literature, Vol. 42, No. 1, March 2004, 7-71.

For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay Round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction, and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The purpose of this essay is to set out what we currently know about the environmental consequences of economic growth and international trade. We critically review both empirical and theoretical work to answer three basic questions. What do we know about the relationship between trade, economic growth, and the environment? How can this evidence help us evaluate ongoing policy debates in this area? Where do we go from here? To answer these questions, we discuss both the empirical and theoretical literature with the aid of a relatively simple general equilibrium model where government policy and private sector behaviour interact to determine the equilibrium level of pollution.


Trade and Trade Policy in Endogenous Growth Models

M. Scott Taylor

Trade Policy and the Pacific Rim, International Economics Association Round Table Conference, McMillan Press, eds. A. Woodland and J. Piggott, 1999.

Since the late 1980s, trade theorists have been aware that trading opportunities and trade policy can have important, and lasting, effects on a nation’s rate of economic growth. Conversely, since the time of Edgeworth, Mill and Ricardo trade economists have been studying the consequences of ongoing improvements in technology and growth of factor endowments for trading opportunities and trade policy. I follow this division of labour by specializing this review in a similar, and, I hope, complementary manner. The first goal of this chapter is to synthesize the major theoretical results from the new growththeory linking international trade and trade policy to permanent and lasting effects on growth rates. The second goal is to study how the consequences of ongoing endogenous growth may affect the incentives governments have to restrict trade at a point in time, and how endogenous growth can shape and limit the form of self-enforcing trade liberalizations that are supportable over time.


The Kindergarten Rule of Sustainable Growth

W. Brock and M. Scott Taylor

The National Bureau of Economic Research, Working Paper No: 9597, January 1997.

The relationship between economic growth and the environment is not well understood: we have only limited understanding of the basic science involved and very limited data. Because of these difficulties it is especially important to develop a series of relatively simple theoretical models that generate stark predictions. This paper presents one such model where societies implement the Kindergarten rule of sustainable growth.' Following the Kindergarten rule means implementing zero emission technologies in either finite time or asymptotically. The underlying simplicity of the model allows us to provide new predictions linking the path of environmental quality to pollutant characteristics (stocks vs. flows; toxics vs. irritants) and primitives of the economic system. It also provides a novel Environmental Catch-up Hypothesis.


"Once-off" and Continuing Gains from Trade

M. Scott Taylor

The Review of Economic Studies, Vol. 61, No. 3, July 1994, 589-601.

Most economists are familiar with the static or "once-off" welfare gains created by opening an economy to trade. Much less is known about how the resource reallocations necessitated by this move affect long-run growth, and hence whether they provide dynamic or continuing welfare gains in future periods. This paper employs a dynamic Ricardian trade model to provide a decomposition of the gains from trade into "once-off' and continuing categories. In one version of the model, trade is always welfare enhancing; in the other, "once-off" losses may occur alongside dynamic gains. In both versions the magnitude of "once-off" and continuing effects are related to absolute and relative country size, similarity in production structures, rates of time preference, and the productivity of R&D. 


"Quality Ladders" and Ricardian Trade

M. Scott Taylor

Journal of International Economics, Vol. 34, No. 3-4, May 1993, 225-243.

A model of endogenous growth and trade is developed that extends the continuum Ricardian model of Dornbusch et al. (1977) to a dynamic framework, generalizes the ‘quality ladders’ approach of Grossman and Helpman (1991a, b), and complements the work of Krugman (1987) on dynamic Ricardian economies. In contrast to earlier work the model incorporates heterogeneity across industries in research and production technologies, and in the technological opportunity for innovation. The importance of heterogeneity is demonstrated through a comparative steady-state analysis. Several applications for the model are discussed and many others appear possible given its relatively simple structure.