Trade and the Political Economy of Renewable Resource Management

Abstract

A growing body of literature suggests that political factors are one of the major causes of environmental damage in developing countries endowed with a relative abundance of renewable resources. This has prompted calls for the use of trade sanctions to encourage sustainable resource management practices in these countries. This paper develops a model to assess the interaction between political lobbying, trade and the incentives to extract a renewable resource. It is demonstrated that in a political equilibrium trade sanctions may have effects that have not been previously identified in the literature. It is shown that if the government is predisposed to the demands of special interest lobby groups, then trade sanctions may fail to induce better resource management practices. There are circumstances where sanctions lead to greater harvesting of the renewable resource and worsen environmental outcomes.

Keywords: trade sanctions, environment, renewable resources, political economy

JEL Classification: Q23, Q28, D78, F19