Analysis of the relationship between renewable natural resources,externalities and international trade using an open accessequilibrium model

This paper analyses the effects of stability analysis and trade policies on welfare, environmental stock and local prices in economies where two different negative externalities on the renewable resource stock exist separately and simultaneously. These negative externalities are called "excessive usage of renewable resources" due to imperfectly defined property rights and open resource access and "pollution" caused by an imperfectly regulated production sector. In the first section, the stability analysis of the steady-state equilibrium in the closed economy case is carried out algebraically. For three different cases where externalities exist independently and simultaneously, steady-state equilibrium points are found and it is mathematically proved whether these equilibrium points are stable or not. In the second part, a two-country trade model is analysed. Countries differ in terms of the values of pollution parameters, but since these parameters take low values, it is assumed that the production sector is relatively more properly regulated. This differentiation determines the direction of trade. The country exporting a good that uses the resource stock as an input factor loses as a result of foreign trade, while the country exporting a good that pollutes the resource stock gains as a result of foreign trade. In the presence of two different negative externalities, properly regulating only one externality leads to a welfare loss when the country opens up to foreign trade. Externalities need to be simultaneously regulated and internalised. Another result of the model is ascertained that import customs taxation is superior to export customs tax policy in terms of Pareto improvement.