Environmental Protection in the Presence of Unemployment and Common Resources

• Date: 01 February 2016
• Author: Muneyuki Saito,Kenzo Abe
• DOI: http://doi.org/10.1111/rode.12197
• Published date: 01 February 2016

Environmental Protection in the Presence of

Unemployment and Common Resources

Kenzo Abe and Muneyuki Saito*

Abstract

This paper examines the effects of an export tax (on a processed resource good), the number of harvesters

and an afforestation policy in a small, open economy with urban unemployment. The export tax increases

the urban unemployment rate, but improves the quality of the environment. Here, the optimal export tax is

lower than the adjusted marginal environmental damage. Reducing the number of harvesters has a similar

resource allocation effect to that of an export tax. However, the afforestation policy can resolve the trade-

off between urban unemployment and the quality of the environment and may also improve the welfare of

a country.

1. Introduction

Improving and protecting the quality of the environment has become an important

issue worldwide. A major problem in Southeast Asia is deforestation, exacerbated by

an increase in the trade volume of timber products. To address the problem, many

countries adopt export restrictions, although theory has shown that a domestic pro-

duction tax or a consumption tax is more efficient. Kim (2010) reports that export

restrictions are also adopted in many less-developed countries for environmental pro-

tection or the conservation of natural resources. The Philippines and Indonesia actu-

ally ban the export of logs in order to manage their forests. In addition, Islam et al.

(2010) analyze the role of trade barriers to the timber trade in Malaysia.

However, there is a trade-off between environmental preservation and unemploy-

ment, which has become a major issue of economic debate. Export restrictions or

export taxes tend to force domestic industries to bear the burden. In general, export

restraints reduce the amount of exports and domestic output. Shrinking domestic

industries may also increase the rate of unemployment. Therefore, the trade-off

between the quality of the environment and unemployment is an important problem,

and needs to be resolved.

Some researchers have analyzed trade and environmental policies in the context of

the environment and unemployment in an open economy. Dean and Gangopadhyay

(1997) were the first to address this issue. They derived the optimal trade and envi-

ronmental policies for a small, open economy in which log production causes negative

externalities for agricultural production and urban unemployment. Chao et al. (2000)

and Chao and Yu (2003) examined the same issue, but in a vertically linked

* Abe: Department of Economics, Osaka University, 1–7, Machikaneyama, Toyonaka, Osaka 560-0043,

Japan. Tel: +81-6-6850-5213; Fax: +81-6-6850-5256; E-mail: k-abe@econ.osaka-u.ac.jp. Saito: Nara Prefec-

tural University, Nara, Japan. The authors would like to thank the participants at the Asian Pacific Trade

Seminars (APTS) conference for their valuable comments. In addition, they would like to thank an anony-

mous referee for helpful comments and suggestions to improve the paper. This research was financially

supported by the Grants-in-Aid for Young Scientists (B) from the Japan Society for the Promotion of

Science.

Review of Development Economics, 20(1), 176–188, 2016

DOI:10.1111/rode.12197

©2015 John Wiley & Sons Ltd