Although economists agree that, by raising the prices of domestically produced products, pollution abatement expenditures alter a country’s comparative advantage and trading pattern, no formal measurement of the impact has been made. This paper attempts to measure on an ex post basis the impact of marginal changes in industrial pollution abatement on u.s. balance of trade in general, and balance of trade with Canada as a special case. More specifically, Baumol and Oates’s (1975) theoretical work on the trade impacts of industrial
0008-4085 / 88 / 187-199 $1.50 © Canadian Economics Association
188 H. David Robison
pollution abatement is extended from a two final-good model to a seventy-eight sector model with all interindustry effects considered. Using this extended model, measurements of the trade impacts of marginal increases in abatement expenditures are made for each sector. These measurements are an upper bound to potential impacts on the balance of trade because all mitigating variables such as improved terms of trade, offsetting governmental policies, and adjustments in exchange rates are ignored. The results for 1977 range from $ — 0.1 through $ — 80.9 to $ — 566.6 million for transportation services, electric utilities, and ferrous metals, respectively.