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ABSTRACTThis paper studies the impact of a World Trade Organization withdrawal of trade concessions against countries that fail to respect globally recognized environmental standards. We show that a punishing tariff can be effective when environmental and trade policies are endogenous. When required standards are not too stringent with respect to the marginal damage of pollution, compliance along with free trade as a reward is the unique equilibrium outcome. A positive optimal tariff in the case of non-compliance prevents complete relocation to pollution havens, but only works as a successful credible threat and does not emerge in equilibrium.

JEL Classification Codes: F13, F43,O3.-- Trabajo publicado como artículo en BE Journal of Macroeconomics 11(1): (2011).-- http://dx.doi.org/10.2202/1935-1690.2087 ; Increasing evidence support the claim that international trade enhances innovation and productivity growth through an increase in competition. This paper develops a two-country endogenous growth model, with rm speci c R&D and a continuum of oligopolistic sectors under Cournot competition to provide a theoretical support to this claim. Since countries are assumed to produce the same set of varieties, trade openness makes markets more competitive, reducing prices and increasing quantities. Under Cournot competition, trade is pro-competitive. Since rms undertake cost reducing innovations, the increase in production induced by a more competitive market push rms to innovate more. Consequently, a reduction on trade barriers enhances growth by reducing domestic rm's market power.& ; Financial support of the Span- ish Ministry of Education (SEJ2004-04579) and (SEJ2007-65552). Antonio Navas acknowledges nancial support of the Spanish Ministry of Science (ECO2008-01300) and the regional government of Madrid and the Univesidad Autonoma de Madrid (CCG08-UAM/HUM-4438) ; Peer reviewed

We study the evolution of trade liberalization's effects on Brazilian local labor markets. Regions facing larger tariff cuts experienced prolonged declines in formal sector employment and earnings relative to other regions. The impact of tariff changes on regional earnings 20 years after liberalization was three times the effect after 10 years. These increasing effects on regional earnings are inconsistent with conventional spatial equilibrium models, which predict declining effects due to spatial arbitrage. We investigate potential mechanisms, finding empirical support for a mechanism involving imperfect interregional labor mobility and dynamics in labor demand, driven by slow capital adjustment and agglomeration economies. This mechanism gradually amplifies the effects of liberalization, explaining the slow adjustment path of regional earnings and quantitatively accounting for the magnitude of the long-run effects. (JEL F16, J23, J31, J61, O15, O19, R23)