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Abstract
Biotic elements such as pests create biodiversity effects that increase production risks and
impede land productivity when agriculture becomes more specialized. We show in a Ricardian
two-country trade setup that production specialization is incomplete under free trade because
of the decrease in land productivity. Pesticides allow farmers to reduce these effects, but they
are damaging for the environment and for human health. When regulating farming practices
under free trade, governments face a trade-off: they are induced to restrict pesticides use compared
to autarky because national food consumption depends less on them, but they also want
to preserve the competitiveness of their agricultural sector on international markets. We show
that at the symmetric equilibrium under free trade, restrictions on pesticides are generally more
stringent than under autarky. As a result, trade increases the price volatility of crops produced
by both countries, and of some or all of the crops that are country-specific depending of the
intensity of the biodiversity effects.