Trade, Trees, and Contingent Trade Agreements

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Abstract

Can trade agreements motivate environmental conservation? I ...rst present a model whereby the government in the South expands its production capacity (e.g., deforest) before trading with the North. After deriving negative relationships between tari¤ reductions and conservation, I show how all negative results are reversed if countries can negotiate a contingent trade agreement (CTA), where default tari¤s vary with changes in the production capacity (or forest cover). A calibration suggests that growth and liberalization can cause Brazil’s agricultural area to expand by 27%, but this expansion can be avoided if the EU and the US o¤er a CTA.