Australian Centre for International Agricultural Research (under PN9449) and the World Bank for financial assistance. Will Trade Liberalization Harm the Environment? The Case of Indonesia to 2020

ESTIMATING ENVIRONMENTAL EFFECTS OF TRADE AGREEMENTS WITH GLOBAL CGE MODELS: A GTAP APPLICATION TO INDONESIA Anna Strutt and Kym Anderson Provided globally optimal environmental and other policies are in place, mostfavoured -nation (MFN) trade liberalizations will always improve global economic welfare. But since the proviso is not met in practice, empirical studies of the environmental and resource depletion effects of such reforms are needed to determine whether trade reform is still worthwhile. This paper provides a methodology for doing that, using a modified version of a multi-country economy-wide model. Attention focuses on environmental effects in just Indonesia, a large newly industrializing country that is rich in natural resources and committed to taking part in major multilateral and regional trade liberalizations over the next two decades. A modified version of the global CGE model known as GTAP is used to project the world economy to 2010 and 2020 without and with thos...

joint research project on policy analysis of linkages between Indonesia's agricultural production, trade and environment Rapid economic growth in Indonesia has been accompanied by significant structural changes, including for its agricultural sector and its unique natural environment. Recently questions have been raised about the impact of Indonesia’s agricultural, industrial, trade and environmental policies on sustainable rural development. The nature of interactions between the economic activities of different sectors and the environment are such that an intersectoral, system-wide perspective is essential for assessing them. An international perspective also is needed to assess the impact on Indonesia of major shocks abroad, such as the implementation of the Uruguay Round agreements, APEC initiatives, or reforms in former centrally planned economies. There is increasing pressure on supporters of liberal trade to demonstrate that trade reforms at home or abroad affecting countries such as Indonesia will not add to global environmental problems (e.g., deforestation, reduced biodiversity). Again, this requires system-wide quantitative models of the economy and ecology, because typically there are both positive and negative effects at work, so the sign of the net effects ultimately has to be determined empirically. To begin to address these issues, the Australian Centre for International Agricultural Research (ACIAR) has generously provided funds for a collaborative 3-year project (to mid-