International Trade and Open Access Renewable Resources : The Small Open Economy Case

We examine the effect of trade on a small open economy with an open access renewable resource. Within a novel two-sector equilibrium model we first chracterize the autarkic steady state, and then show trade reduces steady state utility for a diversified resource exporting small country. Instantaneous utility rises as trade first opens, but these gains are eroded by ongoing resource depletion. The present value of utility falls for sufficiently small discount rates, and improvements in the world price of exports may be welfare-reducing. We also show that autarky prices, the pattern of trade, and the possibility of diversified production are all linked to a simple ratio of the biological resource growth rate to labor supply