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Abstract

We investigate the implications of trade liberalization and pollution taxes on aggregate income, pollution, and natural resource use in Chile with a neoclassical economywide model comprising 75 sectors. The model incorporates 13 measures of pollution effluents which are linked to the use of polluting inputs and energy use. We estimate the economic and environmental impact of Chile's participation in NAFfA, MERCOSUR, of unilateral trade liberalization and effluent taxes. Unilateral trade liberalization induces substantial worsening of pollution emissions and expansion of resource-based sectors, partly because of access to cheaper energy. NAFfA integration is environmentally benign in terms of pollution emissions. © 1998 Elsevier Science B.V. All rights reserved.

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