Theory and empirical evidence on the ecology versus economy debate: A nonparametric estimation of the SURE model and an application to a general equilibrium model of trade and environment

The main objective of the thesis is to develop a general equilibrium model of an open economy to discuss several unanticipated consequences of environmental regulatory programs, introduce nonparametric kernel density estimates for a system of seemingly unrelated regression equations (SURE) model and conduct an empirical investigation of the ecology versus economy debate using a reliable econometric technique developed in the thesis.; The ecology versus economy debate has led to many serious arguments since the early nineties. There is a growing concern among advocates of free trade that environmental policies can be used as non-tariff barriers to trade. Opponents argue that free trade agreements will start a race to the bottom, forcing developed nations to lower their environmental standards to match those in the less developed nations. The general equilibrium model presented in the second part of the thesis shows that there are unanticipated consequences of regulation on pollution, production structure, income distribution and the pattern of trade.; The second part of the thesis develops the nonparametric estimator of the SURE model with M equations (each modeling some economic behavior) over N micro-units (which can be individuals or industries) and T time periods. The variance covariance matrix of the error terms is designed to capture contemporaneous correlations across equations. The functional form of the regression equations is unknown. A Monte Carlo simulation experiment examines the small sample properties of alternative estimators and concludes that the proposed estimator drastically outperforms the parametric estimators when the data generating process is non-linear.; The third part of the thesis tests the hypothesis of the theoretical model using the proposed nonparametric estimator of the SURE model. A system of product share and factor share equations are used that are contemporaneously correlated and have unknown functional form. It is observed that for some industries, regulation and output are positively related. The effect of regulation on comparative advantage and pattern of trade is ambiguous for such cases. This casts doubts of the dogma that developing countries export pollution and need to be restrained by interconnecting trade agreements with Multilateral Environment Agreements.