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Trade in an Ecological-economic Integrated Model

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Working Paper

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This paper incorporates the concept of ecological pyramid into the John¡¦s specific factor model of trade to examine comparative advantages, gains from trade, terms of trade, and income distributional effects of trade in the presence of non-market ecosystem services. Our results show that the market price undervalues the opportunity cost of land-intensive goods. The terms of trade, pattern of trade, and gains from trade derived from the relative market price thus is inaccurate and distorted. It further leads to distortions in the composition of industry and in returns to capital and labor. Moreover, in contrary to the conclusion of non-negative gains from trade derived from most of the conventional trade model, the welfare effects of trade are asymmetric between trading countries. Opening to trade raises the welfare of the exporter of non-land-intensive goods but lowers that of the exporter of land-intensive goods.

 

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