Trade and Trees

Abstract

International trade and natural resource exploitation interact in multiple ways. This paper first presents a dynamic game in which the South (S) exploits (e.g., deforests) in order to export (e.g., lumber and agricultural products). Because of negative externalities, the North might lose from trade, unless the resource has already been depleted. Anticipating this, S exploits faster. All negative results are reversed if renegotiation-proof tariffs can be contingent on the size of the remaining resource stock. Larger gains from trade, and more attractive terms of trade, can be used to slow exploitation. Combined with export subsidies, the outcome is first best. (JEL C73, D62, F11, F13, F18, Q23, Q57)