A simple graphical model has been developed to examine the relationship between eco-labelling, international trade and environment. This paper analyses that labelling can possibly have adverse effect on environment when the supply of environment-friendly good is greater than the demand of the friendly good pre-labelling (fig.2). In a dynamic setting, however, this situation could be reversed by shifts of demand and supply curves of environment-friendly products (fig.3). The theoretical model predicts change of product prices, which in turn can alter international trade. In bilateral trade, the interaction with country 2 will result in an improvement in the environmental situation in country 1 only if there is offsetting demand for the environment-friendly good from that country. The environmental situation in country 1 would worsen under international trade only if there is offsetting excess supply of the environment-friendly products from abroad. An empirical case of US tuna export is studied and “dolphin-safe” labelling is found to have a negative coefficient with tuna export volume from US to Canada.
"The Interactions of Eco-Labeling, Environment, and International Trade,"
University Avenue Undergraduate Journal of Economics: Vol. 4
, Article 3.
Available at: http://digitalcommons.iwu.edu/uauje/vol4/iss1/3