Environmental Industries with Substantial Start-Up Costs as Contributors to Trade Competitiveness

This article describes a second reason beside externalities that can justify government support of new environmental-protection techniques. A new analysis of industries with high start-up costs and scale economies shows that the country in which such an industry is located is not dictated by comparative advantage. Hence, gain of a scale-economies activity need not entail loss of another and can increase income in the acquiring country. High start-up costs also impede entry by a prospective rival country, making it easier for the current producer country to retain it. Private enterprise may not find it attracti ve to undertake such socially-beneficial fields because of the substantial private risks that result from their high start-up costs. So, new environmental-protection techniques with high start-up costs or scale economies can contribute to a nation's prosperity even when unattractive to private enterprise in the absence of government support.