Renewable Resources as a Factor of Production in International Trade

This work provides an extensive review of the literature on trade and environmentalissues that has been growing since the early 1990s. The gaps in this literature areidentified and generalizations are provided from results that are scattered.Next, we contribute to this literature by studying a Ricardian model of trade,in which one of the sectors uses a renewable resource as a factor of production. Thecontribution lies in the study of trade and welfare through the full horizon of thewelfare maximization problem, not relying in equilibrium analysis.This study is divided into small country case and a 2 country - 2 factor model.In the first case, we show how trade prevents extinction, and if the assumption of fullopen access environmental externality is relaxed the welfare expected results changesubstantially. In the 2 x 2 model we show that equilibrium is actually not possibleinvalidating many such analyses existing in the literature. This lack of equilibriummay lead the country that is free from environmental externalities to actually losewith trade vis-à-vis autarky.