Impact of Free Trade and Pollution Taxes on Mexican Agriculture. A General Equilibrium Analysis, The

This paper analyzes linkages between growth, trade and the environment in Mexican agriculture with an empirical economy-wide model. The investigation considers trade liberalization, environmental policy reform, and their coordination. The analysis decomposes the change in pollution emission induced by changes in the sectoral composition of production, effects of technology on emission intensity, and aggregate scale effects. Outward orientation alone induces a contraction of aggregate agricultural output, but promotes growth and pollution in some agricultural sectors. Overall, free trade does not induce wholesale specialization in dirty agricultural activities. Environmental taxes on pollution emitted in agricultural sectors have a moderate negative impact on agricultural output, except for the tax on water-borne toxic chemicals. More liberal trade combined with targeted effluent taxes can achieve significant environmental mitigation and efficiency gains, but with the implication of a contraction of most agricultural sectors.