Abstract

This study examines global environmental sustainability in an open economy with international trade by studying the pattern of trade between the developed country and the developing country. Assuming that both economies are productive enough to grow and regulate pollution emissions optimally over time via emission tax, it is found that the developing country is bound to specialize in producing the pollution-intensive goods in a growing economy as long as there exists a sufficiently great technology gap in the production of environmentally friendly goods between the developed country and the developing country. The conclusion holds even if the marginal valuation of environmental improvement increases rapidly in the developing country. The developing country needs to export pollution-intensive goods where it has a comparative advantage in producing to finance imports of environmentally friendly goods that it values more over time. It is suggested that global cooperation for technological development to reduce pollution in the dirty manufacturing industry is needed to prevent ever-worsening environmental degradation in developing countries.

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