Impact of trade on the environment

An interesting result in a book that has “just appeared(link to Princeton books)”:http://pup.princeton.edu/titles/7605.html (although the data are rather old)

bq. “The authors set out the two leading theories linking international trade to environmental outcomes, develop the empirical implications, and examine their validity using data on measured sulfur dioxide concentrations from over 100 cities worldwide during the period from 1971 to 1986 “[emphasis added]. bq. The empirical results are provocative. For an average country in the sample, free trade is good for the environment. There is little evidence that developing countries will specialize in pollution-intensive products with further trade. In fact, the results suggest just the opposite: free trade will shift pollution-intensive goods production from poor countries with lax regulation to rich countries with tight regulation, thereby lowering world pollution. The results also suggest that pollution declines amid economic growth fueled by economy-wide technological progress but rises when growth is fueled by capital accumulation alone”

“Trade and Environment: Theory & Evidence(link to Princton book sales)”:http://pup.princeton.edu/titles/7605.html


The two “leading theories”, it turns out are really two important questions: # What is the impact on the environment of the increased economic activity that follows trade liberalization?
# What impact does an environmental policy have on a nation’s trade pattern? The authors—Brian Copeland and M Scott Taylor—conclude that trade liberalization that increases the scale of economic activity will lead to ‘cleaner’ production techniques; the full environmental impact cannot be determined a priori however but only by empirical investigation. They employ GE modelling techniques to come up with their general result. bq. “… we estimate that a trade liberalization that raises the scale of economic activity by 1% raises pollution concentrations by 0.25 to 0.5% via the scale effect, but the accompanying increase in incomes per capita drives concentrations down by 1.25-1.5% via a technique effect. These estimates imply a strong policy response to trade-inspired income gains. As we show, they also imply that economic growth created by neutral technological progress will both raise real incomes and improve environmental quality, but economic growth fueled by capital accumulation alone will worsen the environment.”

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