ABSTRACT The link between environment and trade has long been the subject of intense policy debate. This study reviews the existing literature and addresses key gaps. We develop a unified framework that incorporates environmental externalities (local versus global), abatement, political competition, and trade. The model shows how producer and consumer/environmentalist lobbying incentives over pollution stringency interact, and how these incentives vary with the nature and magnitude of environmental externalities, the structure of environmental agreements (unilateral versus multilateral), and trade regimes. It also highlights the roles of abatement and terms‐of‐trade effects in shaping the equilibrium outcomes. In a large open economy, cooperative policy internalises the costs of emission leakage induced by lobbying, making it more welfare‐improving than noncooperative policy. Producer and consumer lobbying generally exert countervailing pressures, with their relative influence determined by the weights the government assigns to each group.
Akhundjanov et al. (Fri,) studied this question.