Agricultural Trade and the Role of Externalities

The role of externality in the world agricultural trade is examined theoretically. Analyses are focused on how the social welfare is affected by externality factors in tariff reduction with and without environmental policies, considering both positive and negative externalities. The result demonstrates that import tariff to achieve the maximized social welfare is always positive as long as marginal external benefit is greater than marginal external damage at equilibrium, and that there exists high possibility that tariff combined with targeted environmental policy can improve social welfare and environment at the same time.