Global Environment and International Transfer: A Case without the Transfer of Initial Endowments

Abstract

In recent years, the global environment has been regarded as one of the most important international public goods. Using the simple public good model, this paper examines an economic implication of the transfer from home country to a foreign country on the global environment and each country's economic welfare. In the literature of international transfers, it has been shown that any slight reallocations of initial endowment between two countries have no effect on the quantity of an international public good and the level of each country's economic welfare. It is important, however, to notice that there are some cases initial endowment of one country can not been transfered to the other country. This paper constructs a model where home country sends to a foreign country an amount of a good which is produced in home country. The result in this paper is as follows. If home country produces a good more efficiently and less harmfully to the global environment than a foreign country, the increase of transfer of the good makes better the global environment and improves the economic welfare of not only the foreign country which receives the transfer but also home country which sends it. On the contrary, if home country produces a good less efficiently and more harmfully to the global environment than the foreign country, the increase of transfer of the good makes worse the global environment and deteriorates the economic welfare of not only home country which sends the transfer but also the foreign country which receives it.

JEL classification: H87, R13, Q58