Trade policy reform, endogenous lobby group formation, and environmental policy

Abstract

This paper explores the effects of trade liberalization on environmental policy outcomes when collective action is endogenous. The polluting industry’s ability to undertake lobbying is shown to depend on the degree of competition in the product market, establishing a new link between trade and environmental policies. If trade liberalization causes industry collective action to become harder to sustain, the stringency of the environmental policy is likely to rise. These results highlight the role of trade liberalization on product market competition and its consequent impact on the incentive to lobby for less stringent environmental policies.