StructuralChangeandEconomicDynamics,vol.4,no.2,1993NORTH-SOUTHTRADEANDTHEDYNAMICSOFRENEWABLERESOURCESGRACIELACHICHILNISKY'ThispaperstudiesageneralequilibriumNorth-Southeconomyconsistingoftwocountrieswhichproduceandtradetwogoodsusingtwoinputsofproduction.ItextendstheNorth-SouthtrademodelofChichilmsky(1981,1986)byassumingthatoneinputofproductionisarenewableresourcewhichfollowsitsownphysicaldynamics.Fromthesedynamicsandfromoptimalextractionbehaviorwederiveexplicitlythesupplyofenvironmentalinputsasafunctionoftheirmarketprices.ThereforethispaperfullyderivesthepricedependenceofinputswhichispostulatedexogenouslyintheoriginalNorth-Southmodel.Allmarketsforgoodsandforinputsarefreeandcompetitivethroughout.Weestablishthatdifferentpropertyregimesleadtodifferentsupplyfunctionsforenvironmentalresources.Whenpropertyrightsarewelldefined(asintheNorth)thesupplyofenvironmentalinputsislesspriceresponsivethanitiswhenpropertyrightsareilldefined(asintheSouth).Illdefinedpropertyrightslead toanapparent`abundance'ofenvironmentalresoursinthesouth.Weestablishthatthedifferenceinpropertyrightsintwootherwiseidenticalregions(thesametechnologies,preferences,andendowments)isitselfsufficienttoexplainwhythetworegionstrade.Theregionwithilldefinedpropertyrightsexportstheenvironmentallyintensivegood.Thisleadstooveruseoftheenvironmentworldwide andtolowermarketprices ofenvironmentallyintensivegoods.Thedifferenceinpropertyrightsofthetworegionsdeterminesan apparent`comparativeadvantage'intheexport ofenvironmentallyintensivegoodsintheSouth,evenwhenthetwocountries areidenticalandthereforethereisnorealcomparativeadvantages.Thedifferenceinpropertyrightsalsogivesrise to'apparent' gainsfromtrade,evenwhentherearenorealgainsfromtrade.I.RESOURCESASANORTH-SOUTHISSUETheglobalenvironmentcanbedescribedbythe physicaldynamicsandtheeconomicuseoftheEarth'sresources.Ithasbecome,to a certain extent, aNorth-Southissue.'Developingcountriestendtospecializeintheproductionandtheexportofgoodswhichdepleteenvironmentalresourcessuchasrainforests,ormineralswhosecombustionleadstotheemissionofgreenhousegases.CurrentlytwothirdsoftheexportsfromLatinAmericaareresourcesandColumbiaUniversityandStanfordUniversity.Widedebatefocusesonacidrain,globalwarming,andthepreservationofrainforests.Onehundrednationsagreedtoconsidera treatytoreducethe threat of globalwarmingatRiodeJaneiro,Brasil,June1992.InVancouver,February1991apactwasadoptedthatestablishes aframeworkforatreatylinkingenvironmentalpolicy toeconomicissuesofinteresttoindustrialanddevelopingcountries,suchas theremissionofinternationalsovereigndebtandtransfer oftechnology.©OxfordUniversityPress1993219220G.CHICHILNISKYresourcesmakeanevenhigherproportionof Africa'sexports.Mostof theseresourcesareimportedandconsumedbytheindustrialcountries.Forexample,mostof theworld'sproductionofwoodpulpisconsumedintheindustrialcountries,asisthepetroleumexportedbydevelopingcountries.Theresultisthatindustrialcountriesaccountfora largemajorityofCO,emissions.TheUSaloneconsumes25-30%of theworld'soilproductionyearlyandaccountsfor2J1~,coftheworld'sCO,emissions.Whentryingtodefinepreciselytheconceptofsustainabledevelopmentweareledthereforetoquestiontheroleof internationaltrade.;Inpracticalterms:aretradepoliciesbasedonthetraditionalcomparativeadvantagesofdevelopingcountriescompatiblewithenvironmentalpreservation?Shouldthedevelopingcountriesexportmoreresourceandlandintensiveproductssuchasagriculturalgoods?Orshouldanewvisionof internationaltrade,onemoreconsistentwiththe world'senvironment,replacetheold?Thispaperstudiestheseissueswithinatwo-regionworldeconomywheretheNorthrepresentstheindustrialcountriesandtheSouththedevelopingcountries.Iconsideraclassofenvironmentalissues arisingfromthe use ofrenewableenvironmentalresourcesasinputstotheproductionoftradedgoods.Typicalexamplesarerainforestsusedfortimberordestroyedtogivewaytotheproductionofcashcropssuchascoffee,sugar,andpalmoil.'Inmanydevelopingcountries,thesearecommonpropertyresources(Dasgupta andHeal,1979)whoseownershipissharedwithfuturegenerations(ArrowandFisher,1970.Itcouldbearguedthatsustainabledevelopmentisallaboutthepropermanagementof theworld'srenewableresources.IfpetroleumisreplacedbyfuelsbasedonbiomassascurrentlydoneinpartsofBrazilandAustria,andelectricityisgeneratedbywindorwaterpowerasisdoneinparts ofEuropeandtheUSA,theneventheenergysectorfallsunderthisrubric.Theatmospherecanbeconsideredarenewableorself-regeneratingresource,asarebodies ofwater,BaumolandOates(1988),Walter(197i .(),itcs(1991),Tobey(1990),andothershavestudiedtheeffectsthatenvironmentalcontrolmea,,urC~O)uld haveonpatternsofinternationaltrade.Someofthese studieshavefound measurableeffect(d\r=~indKneese.1971).Allthesestudies focusonthepolicyaspectsofmeasurestocontrolPOllutwnratherthanonourissue:howdifferencesinpropertyrightsregimescanexplaintradebetweenintreemarkets,andthepatternsofenvironmentaluse.Thegeneralconcernthatdevelopne.,'ui,tr1c"developanadvantageinpollution-intensiveindustries,knownasthe'pollutionheavenlv.;,,;h,~i..hasbeenstudiedbyWalterandUgelow(1979)andWalter(1982).Thepotential impliL.t;wndpokcymeasurestoprotecttheenvironmentoninternationaltradewasalsostudiedbyKf.itiil.t(I,+r,7).Maler(1990),andChichilniskv(1982.1985,19116).Ontheotherhand,Dasgupta(It)(it)tp,mnt~loutthattheliteratureondevelopmenteconomicsandtheenvironmentislargelyundevelopedIh~:internationaltradeliteraturehasnottakenuptheissueofpropertyrightsdifferentialsaffectin_thepatternoftrade,norconsideredtradepatternsinageneralequilibriummodelwithcommonpropertyinputs.Totheextentthatexternalitieshave beenstudiedininternationaltrade.theyrefertoproductionexternalitiesinapartialequilibriumframework,e.g.seeDixitandNorman(1980)andKrugmanandObstfelt(1989),withinHeckscher-Ohlinmodelswhereendowmentsarefixed.Instead,westudyageneralequilibriummodelwithvariableendowmentsof acommonproperty resourcewhichisaninputtoproduction,havingsupplieswhichdependonpropertyrights.'Recentstudiesshowthat90%ofalltropicaldeforestationisfortheagriculturaluseofforests,particularlyfortheinternationalmarket(Amelung,1991;Barbieret al.,1991,1992;BinklevandVincent.1990;HvdeandNewman,1991).NORTH-SOUTHTRADE=2lforests,andfisheries.Toagreatextenttheglobalenvironmentaldilemmaisdescribedbythedynamics andtheproductiveuseof theEarth'srenewableresources.FollowingtheHeckscher-Ohlinexampleof asimpleandpowerfulvision,theproblemofNorth-Southtradeisstudiedhereinatwo-regionworldwithtwogoodsand twoinputs