Trade and welfare effects of unilateral environmental regulation: The case of Malaysian palm oil

Some environmental problems transcend national boundaries and pose issues for international as well as domestic policies. The impacts of domestic environmental policy on the welfare of output and input suppliers are evaluated using a partial vertically integrated model. The model includes structural equations for the supply of and demand for the output and input taking account of the price and quantity effects from the world market. The structural equations are grouped into three blocks representing three integrated sectors in the Malaysian palm oil industry and are estimated simultaneously by three-stage (3SLS) and two-stage (2SLS) least squares methods. The restricted reduced form equations are derived and used to evaluate the policy impacts.