International Trade and Open-Access Renewable Resources: the Small Open Economy Case

M. Scott Taylor, University of Calgary
James A. Brander

Abstract

We examine a small open economy with an open-access renewable resource. Using a novel two-sector general equilibrium model, we characterize the autarkic steady state, and then show that trade reduces steady-state utility for a diversified resource exporter. Instantaneous gains occur as trade opens, but they are eroded by ongoing resource depletion. The present value of utility falls for appropriate discount rates, and terms of trade "improvements" may be welfare reducing. We also show that autarky prices, the pattern of trade, and the structure of production are all linked to a simple ratio of the intrinsic resource growth rate to labor supply.