When Trade Burns the Air: The Welfare Consequences of Agricultural Trade Liberalization

Trade liberalization generates economic gains, but production can impose environmental costs both domestically and across borders—raising the question of whether pollution costs discount trade benefits and how costs are distributed internationally. This paper develops a framework to quantify these trade-offs in Southeast Asian agricultural exports, where fire-based land clearing has intensified with trade expansion. We show that export growth significantly increases fire activity, particularly on high-potential agricultural land. Using atmospheric transport modeling to simulate dispersion from millions of fires over the last two decades, we find that fire-induced pollution exposes populations within Southeast Asian countries and across more than 40 downwind countries. Embedding these costs into a general equilibrium model enables welfare comparison. We find that each dollar of export growth generates $0.11 in global pollution damages, with health costs offsetting a substantial share of trade gains—demonstrating that the domestic and international distribution of environmental externalities is essential to evaluate trade welfare.