International trade and terrestrial open-access renewable resources in a small open economy

In this paper, I investigate the effects of trade liberalization and policies on deforestation by extending a small open economy model with open-access renewable resources developed by Brander and Taylor (1997a). I endogenize the carrying capacity of the resource. I find, unlike Brander and Taylor, that trade liberalization may increase the forest stock in the resource-abundant country and may decrease the forest stock in the resource-scarce country. Moreover, the policies primarily aimed at protecting forests, such as import restrictions by importing countries and forest certification for well-managed forests, may have perverse effects on the forest stock.