Does trade liberalization increase global pollution? Hamid Beladi a, *, Reza Oladi b a Department of Economics, University of Texas at San Antonio, 6900 North Loop 1604 West, One UTSA Circle, San Antonio, TX 78249-0633, United States b Department of Applied Economics, Utah State University, United States 1. Introduction The environmental impact of trade liberalization has been a point of contention between the advocates of free trade and the environmental activists. Although the literature on trade and the environment can be traced back to the work of Baumol (1971), it has been growing rapidly only in the past couple of decades or so. In a major strand of this literature the effect of international trade on environmental quality has been studied, see for example Pething (1976), Lopez (1994), Anderson and Blackhurst (1992), Copeland and Taylor (1994), Khan (1996), Batabyal (2000), and Chao and Yu (2007). 1 A fundamental assumption of these papers is perfect competitive markets. The purpose of this paper is to assume imperfect competitive market and analyze the effects of trade liberalization on the environment. As it has been established over the past few decades that Resource and Energy Economics 33 (2011) 172–178 ARTICLE INFO Article history: Received 13 August 2009 Received in revised form 26 March 2010 Accepted 13 April 2010 Available online 24 April 2010 JEL classification: F1 Q5 Keywords: Trade liberalization Global pollution ABSTRACT In this paper we consider a simple duopoly market in which a home firm and a foreign firm use labor to produce an identical product and supply it to the home market. Firms emit pollution as a by- product of production. We show conditions under which interna- tional trade liberalization decreases (increases) the global pollution. ß 2010 Elsevier B.V. All rights reserved. * Corresponding author. Tel.: +210 458 7038; fax: +210 458 7040. E-mail address: hamid.beladi@utsa.edu (H. Beladi). 1 See also McGuire (1982), Grossman and Krueger (1993), Benchekroun and Long (1998), Chao and Yu (2000), Parkash and Khan (2001), and Beladi and Oladi (2005), among others. Contents lists available at ScienceDirect Resource and Energy Economics journal homepage: www.elsevier.com/locate/ree 0928-7655/$ – see front matter ß 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.reseneeco.2010.04.009