The Environmental Effects Of Free Trade

'Free Trade and the Environment' examines the impact of international economic integration on the environment, taking as a case study the experience of Mexico, as it transformed itself from one of the most closed economies in the world to one of the mostopen.

Agriculture, forestry, fisheries, endangered species, transport.

This conference proceedings examines how to assess the environmental effects of trade liberalisation agreements.

Nowhere has the divide between advocates and critics of globalization been more striking than in debates over free trade and the environment. And yet the literature on the subject is high on rhetoric and low on results. This book is the first to systematically investigate the subject using both economic theory and empirical analysis. Brian Copeland and Scott Taylor establish a powerful theoretical framework for examining the impact of international trade on local pollution levels, and use it to offer a uniquely integrated treatment of the links between economic growth, liberalized trade, and the environment. The results will surprise many. 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. 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. Lucidly argued and authoritatively written, this book will provide students and researchers of international trade and environmental economics a more reliable way of thinking about this contentious issue, and the methodological tools with which to do so.

QUOTEWe live in an increasingly interconnected world. Trade flows worldwide are growing rapidly and global production patterns are shifting as countries follow their comparative advantage in production via trade. At the same time, however, there is growing concern about potential adverse environmental impacts from increasing trade.QUOTE--John A. Dixon, Lead Economist, The Environment Department, World BankInterest in the trade and environment debate has intensified as a result of international trade agreements and because many proposed solutions to the climate change problem have potential implications for the global trading system. Clearly more empirical work is needed to inform the debate, guide policymakers toward solutions, and help set priorities.This volume is an attempt to further our understanding of the empirical links between trade and the environment. Thirteen chapters, which were presented as papers at a World Bank conference in April 1998, focus on three main themes:1. Effects of trade liberalization and growth on the environment2. The QUOTEpollution havenQUOTE hypothesis3. Economic instruments for resolving global environmental problemsThe papers address a number of different issues within each of the themes, offering new data or new questions and approaches. They are devoted to deepening our understanding and empirical knowledge of the various effects of trade liberalization. Only through a firm understanding of the linkages involved can well-founded policy advice be formulated.

In general, a reduction in trade barriers will affect the environment by expanding the scale of economic activity, by altering the composition of economic activity and by initiating a change in the techniques of production. We present empirical evidence to assess the relative magnitudes of these three effects as they apply to further trade liberalization in Mexico. We first use comparable measures of three air pollutants in a cross-section of urban areas located in 42 countries to study the relationship between air quality and economic growth. We find for two pollutants (sulphur dioxide and 'smoke') that concentrations increase with per capita GDP at low levels of national income, but decrease with GDP growth at higher levels of income. We then study the determinants of the industry pattern of US imports from Mexico and of value added by Mexico's maquiladora sector. We investigate whether the size of pollution abatement costs in US industry influences the pattern of international trade and investment. Finally, we use the results from a computable general equilibrium model to study the likely compositional effect of a North American Free Trade Agreement (NAFTA) on pollution in Mexico.

"Many of the papers included in this volume were first presented and discussed in the Spring of 2000 at a conference on lessons from the NAFTA for the FTAA"--Pref.