This paper examines the environmental effects associated with Taiwan's application for membership at the World Trade Organization. The objective is to provide quantitative assessment of carbon dioxide emissions from changes in the level and structure of production activity in Taiwan following a liberalization of trade. The estimates are derived from a five-household, 18-sector computable general equilibrium model calibrated to a 1996 social accounting matrix. Our empirical results show that total carbon dioxide emissions increase as a result of trade liberalization, there is also a shift in the structure of production towards those sectors that are the most carbon-intensive.
Will the realization of comparative advantages induce a risk of specialization in dirty activities? For most countries, the issues involved have important implications for design of development strategies.
Recently, several studies on trade and the environment have argued that international trade is a primary contributor to environmental degradation. The argument advanced is that environmental emissions affect the pattern of comparative advantage: countries with comparatively higher levels of environmental assimilative capacity, or with comparatively lower valuation of environmental quality have a comparative advantage in the production of pollution-intensive goods (see Blackhurst, 1977, Siebert, 1977, Shrybman, 1990, Beghin et al., 1994, Beghin et al., 1995, Perroni and Wigle, 1994 and Dessus and Bussolo, 1998, for surveys). Most empirical researches tend to confirm that developing economies specialize in dirty industries (Hettige et al., 1992, Lee and Roland-Holst, 1994, Lee and Roland-Holst, 1997, Copeland and Taylor, 1995, Gale and Lewis, 1995 and Dessus and Bussolo, 1998). This implies that the new patterns of resource allocation and output composition under free trade are more pollution-intensive for these countries. Although previous studies have been a detailed evaluation of trade and the environment, little attention has been devoted to inquiring about these relationships in the Asian newly industrialized countries (the so-called NICs).1
The objective of this paper is to examine the effects of trade liberalization on carbon dioxide emissions in the Taiwan economy. The Taiwan case is interesting for a number of reasons. For the past three decades, the Taiwan economy has enjoyed a remarkable growth rate of approximately 8% per annum. Like many other NICs, Taiwan has followed a trade-led growth strategy since the early 1960s. The high ratio of export/GDP and import/GDP both averaging 45% make its economy very sensitive to the trade policy. The rapid economic growth has created substantial changes in production structure for the nation's economic sectors. This makes a rapid increase in energy consumption and carbon dioxide emissions. In 1990, Taiwan imports more than 90% of its energy resources and ranks 25 in global carbon dioxide emissions (Yi, 1994). Accordingly, Taiwan's economic growth following a trade-led strategy should rely upon the production of pollution-intensive goods. This study will test whether this assertion can be confirmed by empirical results. In practice, Taiwan is applying for membership at the World Trade Organization. If admitted, Taiwan will have to abide by the terms of the agreement reached in Uruguay at the end of 1994, plus those reached in bilateral negotiations between Taiwan and the existing member countries (see Chu, 1996, for discussions). Will the Uruguay Round agreement lead to the creation of a pollution haven south of the border and to further environmental degradation in Taiwan? Whether or not such a question is examined by data is therefore an interesting empirical question. This paper aims at offering a quantitative analysis of environmental effects associated with Taiwan's application for membership at the World Trade Organization, and specifically at evaluating the effect of trade liberalization on carbon dioxide emissions.
Our study is the application of the computable general equilibrium modeling approach, which has been widely used to investigate these questions. The computable general equilibrium techniques we used are superior the partial equilibrium analysis. In particular, the computable general equilibrium framework captures interrelationships among economic sectors and accounts the feedback effects of trade liberalization. Meanwhile, in order to decompose the change of carbon dioxide emissions from trade liberalization we will also employ Laspeyres index decomposition method, and consider explicitly the effect of trade liberalization.
The organization of the paper is as followings. After this introduction, in Section 2 we briefly describe the computable general equilibrium model and present the data sources. Thereafter, the simulation results will be discussed. Finally Section 4 gives our summary and conclusions. Appendix A is a presentation of the Taiwan's computable general equilibrium model in complete equation form.
