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Policy makers would thus need to consider economic tradeoffs based on incentives for new technological development within this time period or consider subsidies for reduction. The concern about focused research on pollution abatement costs also stems from the context that the impacts of environmental pollution is realized at different time scales from economic benefits.

Therefore, we tend to use a discounting factor often manifest even as high discount interest rate for future benefits of pollution abatement and conversely a high economic cost for the short-term investment needed to curtail the pollution. Thus pollution abatement gets presented as a 'luxury' for those who are already entitled with economic security and the immediacy of income generation can trump the long-term concern about environmental resilience of the full economic system. This perception of grassroots priorities is often reflected in developing country respondents to surveys on prioritization of government expenditure.

Consider, for example a survey conducted by Globescan of 10 Africans from 10 countries across the continent in 5. The fundamental question asked was: What should be our government's top priority? The results reflect the salience of livelihoods to residents of the world's most impoverished continent. Finding jobs may well be the most significant issue for Africans, whereas protecting the environment is of least priority in terms of expenditure. This seeming paradox between the observable impact of pollution on health and well-being versus a lack of public prioritization has also been documented by Greenstone and Jack They suggest some possible causal mechanisms that deserve further research in what they term as a new field of 'envirodevonomics'.

Such a research agenda would specially help in considering livelihood and jobs linkages to environmental harm. It can also be argued that making a linear argument for any industry simply on the basis of jobs can be problematic, if the jobs being created are harmful to society—for example, the huge employment created by the highly pollution-intensive arms trade Yang et al Instead, what is needed is a consideration of opportunity costs of particular forms of employment with a view of livelihoods that considers various potential paths to development that may involve a short-term slow-down in job creation in pollution-intensive sectors to deliver a more long-term and sustainable job creation in other sectors Elliott and Lindley There is thus a need to consider abatement costs in proximate terms versus long-term benefits of the abatement cost as an investment towards a sustainable economy.

There is also evidence to suggest that pollution abatement costs tend to provide increasing returns to scale, which in turn can also explain some observations of why inflection points in the EKC framework can be found. Managi studied how pollution abatement through choice of pesticide and dispensing technologies due to regulations led to increasing return on investments. Investment in abatement technologies for most common air pollutants for which major abatement costs are incurred such as sulfur or nitrogen oxides reduction also shows an increase in marginal return on investment per unit of pollution abated Pappin et al Moser et al suggest that we consider pollution abatement in terms of a competitive market economy where a continuum of identical firms using identical technologies produce a homogenous income creation, which impacts aggregate macroeconomic indicators such as GDP.

In this economy, two types of capital are accumulated. First, there is conventional capital, also called brown capital, which is more pollution-intensive. Secondly, a less-polluting green capital is presented. Furthermore, the government sets environmental performance standards which entrepreneurs who are often the job creators in a development process are obligated to meet.

The necessary abatement effort and costs depend on the stringency of these environmental regulations. Consequently, firms adopting cleaner technologies have to spend less on EOP abatement. This benefit, however, comes at a cost because the required resources for green research and development could be invested otherwise profitably in conventional research and development.

Although both capital levels decline, increasing abatement costs even accelerate the decrease of brown capital levels so that in total production turns out to be greener the higher environmental quality standards are. They conclude that environmental regulation standards can cause a shift to greener production but only at the cost of reduced economic growth. Therefore, the introduction of additional environmental instruments, such as taxes or subsidies, could be considered if this causal pathway for pollution abatement is taken into account.

Indeed, there are studies showing that a pollution tax can potentially have a 'double dividend' by reducing pollution while spurring economic growth Fisher and van Marrewijk This was unfolded in the concept of co-benefits as the idea of having alternatives for achieving economic, environmental and human development goals at the same time, even though there is a long way to bring it to mainstream practice due to technical and political economy factors Puppim de Oliveira Moreover, environmental regulations have different effects on different environmental problems and may not be possible in a different governance context.

For example, Mie Prefecture in Japan was successful to tackle air pollution with environmental regulations in s, but it has had problems with reducing the emissions of greenhouse gases Puppim de Oliveira An empirical example of how 'green capital' can be considered in terms of the cost of pollution control regulations was researched by Cai et al They studied pollution mitigation policies in China's power generation sector from to and noted that this caused a total of 44 thousand net jobs losses.

However, as the share of renewable energy that has an indirect employment impacts increased. The renewable energy policies from to actually resulted in thousand net job gains. Their research suggests that to ensure the co-existence of green economy and green jobs in China's power generation sector, policy makers should further promote solar PV, biomass and wind technologies.

There is also an overarching international dimension of pollution abatement's impact on global economic activity which needs to be considered in the context of trade. In the landmark anthology on this topic, the role of environmental regulation on economic activity edited by Boyle , Benedict Kingsbury identifies a tripartite division of trade measures which need to be considered in terms of overall regulatory impacts on the economic activity: those intended to have a direct effect on a perceived environmental problem e. Each of these approaches can have highly divergent impacts on the economy at a local level as well as on long-term international economic stability.

However, international governance mechanisms which recognize the danger of a 'race to the bottom' in terms of pollution havens emerging at national and sub-national levels deserve attention Porter The relevance of this 'unpacking' of trade policy can assist governments in considering the kind of pollution abatement pathway that should be deliberated within each regional context.

The primacy of natural capital as a limiting means from which we derive other forms of capital is a fundamental premise in both economic and ecological sciences. Technological progress and innovation can often augment the availability of natural capital but a decline in basic environmental systems that support natural capital still remains a looming concern Kolstad Yet, neoclassical economics has generally thought of pollution as a 'social cost' rather than an 'economic cost.

There was historically also a distinct differentiation in the study of natural resource depletion resource economics which was embarked upon by pioneering resource economists such as Hotelling and concerns about the pollution outcomes of economic activity environmental economics by scholars such as Krutilla and Kneese Later economists, like Nobel laureate William Nordhaus, extended some of the concerns about pollution's impact on society and the economy as whole in the context of planetary pollutants such as ozone and greenhouse gases Nordhaus , but largely kept issues of resource depletion and pollution separate.

This reductionist approach came under sharp criticism from ecological economists who saw environmental decline both in terms of absolute depletion of resource stocks, as well as relative depletion due to pollution impairing use of the resource Norgaard , Krishnan et al Ultimately, if natural capital is depleted through overharvesting of stocks or through unviability of harvests due to pollution impact on the resource for example heavy metal contamination of fish , there will inevitably be a negative impact on economic growth.

However, there is also another important dimension of how pollution can stifle the full potential of economic growth which was first noted and modeled by Fisher and van Marrewijk In their model of extended generations of human development where clean air was a pure public good that could be used as a private input for production, they noted that firms that profit from pollution crowd out investment in innovation and slow economic growth.

There is growing evidence of the negative impact of pollution on economic growth and that we need to pay far more attention to indicators of environmental harm such as the ecological carrying capacity to prevent irreversible harm to particular ecosystems that also sustain livelihoods. In addition to direct impacts on environmental systems that can impact natural capital which in turn influences growth, there is also a major loss in productivity caused by the health impacts of pollution.

Respiratory distress can lead to lost work days and have a major impact on the economic output of a locality. The study also considered the benefits of pollution abatement in this context by forecasting at the time of publication up to using a range of policy and growth scenarios.

At the national level, China Lu et al is perhaps the archetypal example of the ultimate impact of pollution on economic indicators, and for the past ten years or so, the government has measured the economic impact of pollution on its economy. Such estimates rely on a mixture of lost production due to closure of sites due to pollution; health impacting workers resulting in lost labor hours as well as healthcare costs. Despite clear evidence emerging of the long-term impacts of pollution on conventional measures of macroeconomic performance such as growth, often the more consequential impact which needs to be considered by development practitioners.

The direct loss of livelihoods from natural resources can also be an additional metric of pollution impacts on economic growth. For example, research on acid rain's impact on fisheries in the Adirondack region by Caputo et al and Beier et al suggest that the economic value of the fishing resource itself declines measurably with reduced pH. For small regional economies, this can have substantive localized impact on economic growth but is challenging to isolate and measure.

Another means of estimating the connection between pollution and economic growth is to consider productivity impacts in particular sectors. Concerns of pollution's impact on productivity are not confined only to the outdoor environment. A corollary for economic growth which has also been used by researchers interested in studying the impact of pollution is the labor supply availability. Aggregating such analysis can generate some estimates for direct growth impacts, though accounting for intervening exogenous variables makes that next leap of estimating more challenging.

Thus studies looking at the negative impact of pollution on economic development tend to focus on aggregated impacts in the whole economy in larger scale at the medium and long-term, instead of analyzing impacts of pollution abatement private costs on specific firms in the short-term such as in item C.

As noted by the World Bank in its Approach paper on pollution, approximately nine million people die annually from pollution, mostly young children 1. The paper further notes that 'healthy life years lost due to pollution in developing countries amount to 15 times that of developed countries' WHO a , b. One of the most widely studied pollutant is arsenic, which also occurs naturally in parts of Eastern India and Bangladesh and often contaminates the water supply.

However, the same inference about pollution linkages to development could be drawn of anthropogenic pollutants as the causal pathways of impact on human capital is identical, whether the pollutant is coming from natural or man-made sources. In one study of Murshidabad region of India Samadder studied a population of 1. Another way to analyze the data could be to consider the environmental justice concerns Schlosberg , which would suggest that property values would be lower in areas of arsenic and hence pollution would more greatly impact the poor through market mechanisms.

Evidence for such differentiated exposure to pollution by the poor has been documented most comprehensively by Walker Mercury is another notable pollutant which has been widely studied and has recently resulted in an international treaty on its control The Minamata Convention on Mercury, which entered into force in August In the most widely cited study Trasande et al found that the costs to the U.

Given the vast range in cost estimates, there can be even greater concern for local variation in terms of policy-making. Minnesota's use of coal which attributes to mercury emissions to generate power is higher than the national average. In addition to health impacts, pollution can hamper development by reducing the viability of land for agriculture, water usage for fishing and trees for forestry.

The connection of the poor to global value chains is often considered a way to help quell poverty. Yet, the ecological resilience of the environment to pollution in which the poor are often situated can test this presumption Bolwig et al The concept of ecosystem services as a common-good that is provided to all social strata of society may help to address some of these concerns about environmental injustice as well as providing an accounting mechanism for us to reconcile economic development and environmental conservation Adams et al Quantifying the financial value that comes from conserving nature has been a major area for research and led to the concept of 'ecosystem services'—those benefits provided by nature that have direct economic benefit but do not have a market Daily ed.

This also led to further investment by the international banking community in recent years including The World Bank in programs which can allow for accounting of these ecosystem services 7. The next question to ask, however, is if the accounting can be carried out, how might we use financial transaction to help the poor conserve nature.

The concept of 'payment for ecosystems services' PES has emerged as a result and is now being widely used as a policy tool to mitigate the ultimate development harms of environmental decline Kumar and Muradian Research on the efficacy of PES deserves greater attention The findings of Bulte et al support the analysis of Pagiola et al who suggested that the pre-condition for PES programs to have beneficial effects on poverty reduction is that the poor should: i be in the 'right place'; ii want to participate e.

However, they also conclude that tying PES and poverty reduction may result in lower efficiency in meeting either objective—and in fact it may be better to focus programs on one or the other objective separately. Nonetheless, since PES programs can have indirect effects on the poor-through changes in food prices, wages and land access—poverty and the poor do need to be taken into consideration in designing PES programs, even if poverty reduction is not an objective of the program.

However, there is a rising concerns of some authors about the 'commoditization' of the ecosystem services in a market, which can lead to over-exploitation and evictions of the traditional ecosystem users to make the services available to those who can afford paying for the ecological services Lohmann Thus 'green growth' could be achieved, but the benefits would not be distributed evenly for all.

As we consider win—win opportunities in balancing economic and environmental issues, the nascent concept of a 'circular economy' posits a definitive paradigm shift in the way industrial processes relate to the modern economy World Economic Forum , Ghisellini et al The conventional economic model has been focused on linear material flows from mines to markets. However, a circular economy approach that has emerged in recent years suggests the need to reconfigure the economic systems around materials recycling and hence circularity.

As with any such major shift in human endeavor, a strong philosophical underpinning can help to draw theoretical insights which in turn allow for transferability of concepts across cases. In this article, the aim is to suggest that a form of dialectical analysis has particular potential in addressing many of the concerns raised by critics of a circular economy. Circularity in modern discourse often implies stasis and thus the circular economy paradigm encounters the same criticism from many neoclassical economists which was faced by Herman Daly three decades ago with his concept of a 'Steady-State Economy.

It is important to note, however, that proponents of circular economy are willing to embrace growth, so long as material flows are better cycled within the growth paradigm—they are thus focused on stability at the microeconomic level rather than having a steady-state at the macro-economic level George et al A neglected aspect of the circular economy discourse has been an evaluation of how such a paradigm would impact basic human development challenges. There seems to be is a presumption that 'win—win' outcomes would emerge from efficient systems in a circular economy that could provide development dividends in the world's poorer nations Ghisellini et al Yet some of the dominant premises of a circular economy necessitate reduced consumption and increased durability of material products which has the potential for a major impact on human development in areas that depend on livelihoods from those processes.

The simple idea of increasing efficiency by a circular economy will lead to the solution for the increasing ecological footsteps does not hold true, as the Jevon's Paradox may boost aggregate consumption of more efficient system in the long-term in a market economy Jevons , Dale et al Overall reduction in consumption may be necessary. As a locus of analysis, consumption of myriad products and services and the fundamental primary resources on which they depend provides an essential link between economic development and environmental impact Ali In this regard, there have been calls in the literature to have a better environmental accounting system to track elemental inputs and outputs so as to gauge the tradeoffs between positive economic impact of a project and is negative environmental effects Almeida et al A major concern in implementing a circular economy model would be the ultimate provision of employment in an economy structured around conventional jobs.

Optimists in this regard would argue that a transition to a service sector and its concomitant wealth creation would counterbalance the reduced throughput of manufacturing employment and livelihoods for industrial economies. The transition of livelihoods following automation of major labor-intensive industries during the past century is often alluded to in this vein.

Core to such a transition in employment has been the role of entrepreneurs that fuel new opportunities for employment and livelihood growth McMillan and Woodruff However, the opportunities to benefit from a more circular economy through increasing the value and efficiency of waste material can displace jobs from those less powerful. For example, increasing the value to recyclables can lead to the emergence of recycling companies to the detriment of waste pickers Do Carmo and Puppim de Oliveira Moreover, there are limits to the absorption of employment by the service sector, even in advanced economies, as researched by scholars such as Ebner The potential for high population developing countries in reaching a saturation of entrepreneurial activity deserves further study in the green technology sector, similar to how it has been studied in the case of the IT sector in India.

However, such analysis will require a much broader global effort to harness data across supply chains of material usage. In a neoclassical paradigm of green growth, the long-term economic development through increasing efficiency in a more circular economy may lead to more green jobs in the short and medium term, but overall less jobs in the long-term with the continuous push to efficiency through competition mechanisms Dale et al Harkening back to the World Development Report which was themed for the first time on issues of 'Development and the Environment' there was a clear recognition that economic growth and the environment were inextricably linked and that neither are functionally exogenous to each other World Bank That salient observation still holds true, though it has since been unpacked through research.

The literature presented in this paper has highlighted the mechanisms by which the interactions between financial and natural capital, as manifest often in terms of economic growth and ecological resilience, respectively occur. Population growth, particularly in the context of developing countries, remains a lingering imponderable for a more coherent vision for balancing environmental tradeoffs with economic growth. Even with short-term economic growth, a downward spiral can occur by the negative feedback loops between natural capital decline, and rush to overexploitation due to desperation—the fabled 'tragedy of the commons' outcome that we were warned of by Hardin Such a presumption of population impacts on irreversible environmental decline further led Hardin to post the extreme view of 'Life Boat Ethics' whereby we would sacrifice other development goals in favor of extreme resource conservation, for what was deemed by many neo-Malthusians as an existential environmental crisis Hardin However, such an approach is no longer plausible in terms of global ethical norms and a realization that some level of irreversible global environmental decline may well be acceptable to meet some human development objectives.

The key focus of environmentalists is now to ascertain which 'planetary boundaries' are the most salient for conservation Steffen et al Population growth can suggest greater innovation potential and an able workforce—often termed 'the demographic dividend'—but also a major drain on resource endowments. The various permutations of this equation have been admirably studied before particularly, Chertow and are beyond the scope of this article. Suffice it to say that for our purposes here, the technological variable needs to be better connected to the concept of 'planned obsolescence', which is an important feature of consumer product-driven development Guiltinan One effort to incorporate the IPAT analysis within a circular economy has been posited for the development of Shaanxi province in China Ying and Wen-ping However, the technological variable in their analysis is not adequately unpacked to consider the development and innovation dividends of obsolescence Kurz Product design, modularity and finding more ecologically sustainable energy sources would likely be needed to ensure that a 'spiral of development' that was envisaged by social ecologist Murray Bookchin as a dialectical process can occur as the circular economy is established.

Other win—win opportunities are also offered by proponents of green technology economic multipliers and ways of 'technological leapfrogging' which would reduce resource intensity and pollution while growing the economy, albeit more slowly Pollin Ultimately, the costs of pollution to society and economic growth occur over longer time horizons than the internalization of abatement costs at the level of industry. However, the kind of governance established can influence the outcomes and response from economic actors Puppim de Oliveira and Jabbour Moreover, pollution's impact on economic growth is measured more indirectly as well through loss of productivity and health costs rather than through a direct causal relationship.

Thus the pollution-development nexus must continue to be an area of intense research activity from a broad range of disciplines. Ultimately, the value of pollution control will need to be constantly evaluated as new technologies emerge across the multiple pathways and connections between pollution and development presented in this review paper. Crossref Google Scholar. Google Scholar.

Recycling, International Trade and the Environment - P.J. van Beukering - Google Books

This site uses cookies. By continuing to use this site you agree to our use of cookies. To find out more, see our Privacy and Cookies policy. Close this notification. Environmental Research Letters. Share this article. Article information. Author e-mails. Peer review information. Introduction The relationship between pollution and economic development has been widely debated across various disciplines in the natural and social sciences.

Zoom In Zoom Out Reset image size. Economic development outcomes leading to pollution abatement EKC hypothesis. Pollution's negative impact on development even with economic growth—inequality effect. Indicators 76 —30 Crossref Google Scholar. Change 59 23—61 Crossref Google Scholar. Boyce J K Inequality as a cause of environmental degradation Ecol. Brannlund R and Ghalwash T The income-pollution relationship and the role of income distribution: an analysis of Swedish household data Resour.

Energy Econ. Briggs D Environmental pollution and the global burden of disease Oxford J. Coase R The problem of social cost J. Law Econ. Davis M E Recessions and health: the impact of economic trends on air pollution in California Am. Health —6 Crossref Google Scholar. From an activist slogan to a social movement Environ. Values 22 — Crossref Google Scholar. Do Carmo M and Puppim de Oliveira J A The semantics of garbage and the organization of the recyclers: implementation challenges for establishing recycling cooperatives in the city of Rio de Janeiro, Brazil Resour.

Trade 10 —41 Crossref Google Scholar. Ekins P The Kuznets curve for the environment and economic growth: examining the evidence Environ. A 29 —30 Crossref Google Scholar. Trade Econ. Modelling Softw. Ghisellini P, Cialani C and Ulgiati S A review on circular economy: the expected transition to a balanced interplay of environmental and economic systems J. Cleaner Prod.

ISBN 13: 9789048156818

Guiltinan J Creative destruction and destructive creations: environmental ethics and planned obsolescence J. Ethics 89 19—28 Crossref Google Scholar. In a second exercise, Grossman and Krueger follow the approach of Tobey , using data on US imports from Mexico classified by industrial sector. They investigate whether pollution abatement costs [1] - in the US could explain the Mexican specialization and trade patterns, thereby confirming the results of Tobey , according to which environmental policy seems to have no effect on trade flows.

The authors find that the composition effect created by an increase in US-Mexico trade is affected by factor endowments rather than by differences in pollution abatement costs thus giving support to the factor endowment hypothesis. The coefficient of pollution abatement costs is negative in four of their six cross-industry regressions that explain US imports from Mexico and is statistically significant in only two of these cases.

This result contradicts the initial predictions, and the authors note that the perverse sign might be due to omitted variable bias. Lucas et al. The authors calculate total toxic emission per dollar of output for different US industrial sectors and make the assumption that these emission intensities remain constant over time and across countries. They find that developing countries as a whole had greater toxic intensity growth during the s and s, but toxic intensity increased in closed fast-growing economies while it declined in open fast-growing economies.

This implies that trade liberalization could not have caused the toxic industry flight. Birdsall and Wheeler replicate the study of Lucas et al. However, this effect is not associated with more trade openness, as in closed economies toxic intensity growth increased while in open fast-growing countries toxic emission growth declined over time. The authors conclude that pollution havens exist, but not where they are supposed to be in protectionist countries. The cited studies can be criticized on multiple grounds. First they only use income levels and openness as control variables; thus, they do not account for the role of other factors such as resource endowments.

Second, because the studies use pooled cross-sections over time, the obtained result could be subject to omitted variable bias. Finally, the assumptions used in constructing the toxic emission intensities seem rather questionable e. This is equal to disregarding the technique effect and leaving only the scale and composition effects Brunnermeier and Levinson, The authors ran three regressions: for total bilateral trade flows, for an aggregation of pollution-intensive-sectors, and for an aggregation of pollution-intensive-sectors that are non-resource based.

As a measure of environmental stringency they constructed an environmental index for both the exporting and importing countries from two OECD environmental indicators in The results are partly consistent with the PHH in that the environmental index has a significantly negative effect on exports in the first regression on total trade flows.

In the second regression dirty trade flows only the effect is insignificant, which is consistent with the findings of Tobey for the s. The authors argue that this might be due to the fact that many trade flows from dirty sectors are from resource based industries and thus from immobile industries. This is undermined by the results of the third regression non-resource based dirty trade flows that again show a negative and significant coefficient.

On the import side the results are counterintuitive. All three regressions indicate a negative influence of country environmental regulation on imports. This leads Van Beers and van den Bergh to speculate that strict environmental regulations may provide an excuse for many governments to introduce new import barriers. Mani and Wheeler search for the existence of pollution havens during the period by using information on industrial production, trade and environmental regulation.

Their study compares the development of the polluting to non-polluting output ratio the share of pollution-intensive products relative to total manufacturing over time with the development of the import to export ratio of polluting industries for the OECD and for Asian and Latin American emerging countries. The authors find evidence for the PHH. In the OECD countries the polluting to non-polluting ratio declined, while at the same time the import to export ratio of polluting industries increased.

This is accompanied by an increase in the polluting to non-polluting ratio and a fall in the import to export ratio in Asian and Latin American countries during the same period. The authors argue that the existence of pollution haven effects revealed by their research had no major significance for several reasons. First, most of the dirty industry development seems to be explained by domestic factors, e. Second, the increase in the share of dirty products in developing countries is mainly caused by a high income elasticity of demand for basic industrial products.

While income continued to grow, this elasticity declined. Third, tougher environmental regulations seem to have played a role in the shift to cleaner sectors. All these factors led the authors to conclude that the evidence found on pollution havens seemed to have been self-limiting, because economic development induces pressure on polluters to increase regulation, technical expertise and clean-sector production.

Thus, the authors only regarded pollution havens as transient. The investigation conducted by Mani and Wheeler can be criticized on the grounds that that their findings are based on speculations, since no comprehensive model is developed that might explain the observed structural changes. In sum, earlier studies investigating the effects of environmental regulations on output flows provided rather mixed results. In general, the estimated coefficient of the explanatory variable is small in magnitude and therefore insignificant. This can be attributed to the fact that the studies mentioned mainly used cross-sectional models which were unable to control for unobserved heterogeneity and endogeneity of right-hand-side variables.

The recent literature attempts to correct the deficiencies of previous studies by employing panel data. The typical strategy is to regress trade flows or data of pollutants such as sulfur dioxide or carbon dioxide on a measure of environmental stringency or a measure of openness respectively and other relevant control variables such as income per capita and factor endowments for a given period. A number of recent studies are closely linked to our investigation.

Antweiler et al. Then they estimate and add up these effects to explore the overall effect of increased trade on the environment, thereby allowing for pollution haven and factor endowment motives. Factor endowment motives of trade seem to dominate pollution haven motives, implying that high income countries tend to have a comparative advantage in pollution-intensive goods. When the estimates of scale, technique and composition effects are added up, the results point to the fact that increased trade causes a decline in sulfur dioxide concentrations.

Based on their analysis, Antweiler et al. In contrast to other studies that rule out the pollution shifting across countries by not interacting trade measures with income, Heil and Selden use a more functional form and show that increased trade intensity increases carbon emissions in lower income countries while lowering carbon emissions in higher income countries. Their findings support the PHH. The author derives a simultaneous equations system that incorporates multiple effects of trade liberalization on the environment. Using pooled Chinese water pollution data pertaining to provinces, the estimation considers the scale, composition and technique effects.

The results suggest that freer trade further worsens environmental damage via the terms of trade while alleviating it via income growth. The simulations seem to suggest that the net effect on China is beneficial. The authors examine the compositional changes in pollution arising from trade liberalization and investigate the cause, i. Similar to Antweiler et al. Trade reform causes a reduction in per capita BOD emissions, while for NO x and CO 2 further trade liberalization will increase emissions.

However, if pollution intensities are used instead of emissions the results change: For all four pollutants, increased trade would reduce the pollution intensity of output. The authors use exogenous geographic determinants of trade as instrumental variables to take account of the endogeneity of trade. They find that trade tends to reduce three measures of air pollution.

Statistical significance is found to be high for concentrations of SO 2 , moderate for NO 2 , and absent for particulate matter. The authors find a positive impact of trade on air quality the estimated coefficient of trade is always negative and support for the EKC the estimated coefficients on the income square term are negative for all air pollutants. Cole tests for pollution havens as well as factor endowment motives by controlling for lagged income per capita scale and technique effects and capita-labor ratio composition effect.

The author finds evidence for both factor endowment and pollution haven hypothesis. Trade liberalization increases energy use for a capital-abundant country and decreases it for a capital-scarce country. Additionally, a high income country will find energy use falling in response to liberalized trade, whereas a low income country will experience an increase in energy consumption. The author estimates elasticities to assess the impact of trade liberalization on energy consumption for the mean country. Both the estimated scale-technique and trade-composition effects are positive, which implies that the mean country will experience increasing per capita energy use in response to trade liberalization.

For the regressions with energy intensities, the technique effects are negative and the trade-composition elasticities positive; thus, the net outcome is uncertain. The hypotheses concerning the link between trade and environmental degradation cannot be entirely confirmed. However, the results bring modest support to the PHH.

The authors further mention that there is some evidence that trade liberalization benefits sustainable development in rich countries, but can be potentially harmful for poor countries. In this section we discuss the different methodologies appliedin the studies described in the previous section. In particular, we highlight what the crucial choices are in designing a study whose aim it is to test the PHH.

Even when the same methods are employed, the investigations may use different samples or sets of variables. First, different dependent variables have been used as a measure of economic activity ranging from plant births, production emissions and net imports to inward and outward foreign direct investments. One might argue that the different applied variables are the causes of the mixed results reported in the literature.

However, the choice of the dependent variable seems to be less important in regard to the ability to find evidence on pollution haven effects. Other factors appear to be more important, in particular the applied econometric approach panel versus cross-section. In the discussion of the dependent variable two further issues arise if pollutants are employed as dependent variables.

These will be discussed briefly because the empirical analysis in the following part will also employ data on different pollutants as the dependent variable. The EKC literature illustrated that the estimated relationship between economic variables e. Therefore, emission data has to be constructed, and the method of construction differs by pollutant. Further, both measurement types have advantages and disadvantages. First of all, it has to be clear that concentrations and emissions provide different information. National emissions provide more information on nationwide environmental issues climate change or acid deposition ; thus, the link to city-level concentrations might be rather weak.

Some policies that aim to reduce the detrimental health impact of air pollution could reduce city-level concentrations but not national emissions e. Furthermore, the use of concentration data leads to some issues in estimation and therefore requires the inclusion of several dummy variables in order to capture site-specific effects. Fixed site-specific effects, such as the nature of the observation site e. On the other hand time-varying site-specific effects, such as the average temperature of the site might affect energy consumption or the level of rainfall at the site rainfall typically reduces concentrations , are more complicated Cole and Elliott, An example of a study employing concentration data as the dependent variable is Antweiler et al.

The authors include numerous dummies to allow for site-specific effects suburban, rural, average temperature and precipitation variation. An advantage of this study through the use of data on concentrations is the separation of technique and scale effects, which is not possible with national emission data. An illustrative example for this is the study by Cole and Elliott , using concentrations to test if the findings of Antweiler et al. In general, they support the results of Antweiler et al.

In contrast, Naughton closely follows the approach by Frankel and Rose , but uses emission data instead of concentration data. The author argues that the correlation between concentrations and emissions is low and thus might not be a good test of the environmental impact of trade, because theoretical models find a relationship between emissions, not concentrations, and trade.

This data modification has significant effects. We might also expect the results to depend on the particular pollutants. CO 2 however, does not have a local impact and has not received a great deal of regulation in the past. Most domestic CO 2 regulations were implemented only in the last 5 to 10 years; attempts for multilateral regulations, such as the Kyoto Protocol, have been rather weak, and progress has been slow.

An Empirical Analysis

Furthermore, all pollutants vary in characteristics such as atmospheric lifetime or health impact. Indeed, estimated results in the empirical literature often differ by pollutant even in the same study. Cole and Elliott find in their study on four different pollutants that the impact of trade depends on the pollutant and on whether it is measured in terms of per capita emissions or pollution intensities.

For the latter, they find for all four pollutants a negative effect on output.

On the contrary, the estimated effects are different in magnitude and sign for all pollutants if measured in per capita emissions. In sum, the results often differ between pollutants, and there is no reason to expect that the finding for one pollutant will be robust for other pollutants Cole and Elliott, Numerous studies test for the PHH by using a measure of environmental stringency as the explanatory variable. Some measures have obvious weaknesses. For example environmental stringency indices used in studies such as Tobey, ; van Beers and van den Bergh, ; Harris et al.

On the other hand, as mentioned by Wagner and Timmins , it is possible that such a measurement captures the correlation even better than objective measures. Nevertheless, it is generally still preferable to apply an objective measure in order to present unambiguous results, so that clear policy implications are applicable. Empirical papers that aim to explain an environmental variable, such as emissions, employ an indicator of trade liberalization or openness as explanatory variable. To our knowledge, all of those studies use the trade intensity the sum of imports and exports divided by GDP.

It might be interesting to check if the results hold for other measures of trade openness as well. A common characteristic of most studies relates to the use of aggregated industry data researchers pool together all industries in order to examine if countries or regions with differences in environmental regulations differ in pollution-intensive activities.

However, there are a number of studies that use disaggregated data industry specific data to examine if specific industry sectors in a country are affected differently by environmental regulations. Some researchers for example, Grether and de Melo, ; Mathys, note that an aggregate analysis hides specific patterns in each industry and, hence, may mask pollution haven effects in specific industries. They argue that, if there is indeed a PHH story in the data, it is more likely to be found at the disaggregated level.

Similarly, Ederington et al. These reasons are that 1 most trade takes place between developed countries; 2 some industries are less geographically footloose than others; and 3 for the majority of industries environmental regulation costs represent only a small fraction of total production costs. In all these three cases, aggregated trade flows across multiple countries could conceal the effect of environmental regulation on trade for countries with distinct patterns of regulation, in the more footloose industries, or in those industries where environmental expenditures are significant, respectively.

The authors find support for the first two explanations: Estimating the average effect of an increase in environmental costs over all industries understates the effect of regulatory differences on trade in more footloose industries and on trade with low-income countries. On the other hand, a study that uses disaggregated data might be problematic, too. For example, most cross-industry studies only examine dirty industry sectors e. Those industries could share some unobservable characteristics e. Restricting the sample to pollution-intensive industries might lead to the selection of the least geographically footloose industries.

Furthermore, it would be reasonable to add clean sectors for a comparison, because we would expect that the effect of pollution regulations on pollution-intensive sectors is different or even has the opposite sign from the effect on clean sectors Brunnermeier and Levinson, Recent studies that control for the role of factor endowments in addition to environmental regulations as the source of comparative advantage find that both effects are at work and tend to cancel each other out see, for example, Antweiler et al.

In general, these studies state that a country with a low capital-labor ratio will experience pollution to fall with trade liberalization, while it will increase for a country with a high capital-labor ratio. Furthermore, a low-income country with lax environmental regulations will find an increase in pollution as a result of increased trade, while pollution will fall for a high-income country. These findings might be an explanation of the failure of the earlier literature to find support for the PHH. Furthermore, these results are consistent with the earlier indications of theoretical models that comparative advantage is determined jointly by differences in regulation policy and factor endowments.

Empirical testing of the linkages between trade and the environment is complicated by two issues: unobserved heterogeneity and endogeneity. Unobserved heterogeneity refers to unobserved industry or country characteristics which are likely to be correlated with strict regulations and the production and export of pollution-intensive goods. Assume a country has an unobserved comparative advantage in the production of a pollution-intensive good; consequently it will export a lot of that goodand also will generate a lot of pollution. Ceteris paribus, it will impose strict regulations to control pollution output.

If these unobserved variables are omitted in a simple cross-section model, this will cause inconsistent results, which cannot be meaningfully interpreted in this example, a simple cross-section model would find a positive relationship between strict regulations and exports. The easiest solution to this problem would be to use panel data and incorporate country or industry specific fixed effects Brunnermeier and Levinson, The endogeneity problem is that pollution regulations and trade may be endogenous, i.

Assuming trade liberalization leads to higher income, which in turn causes an increase in the demand for environmental quality, it follows that environmental regulations could be a function of trade. A possible solution to this problem is to use instrumental variables techniques. However, the instruments should possess the following characteristics: vary over time and correlate with the measure of environmental stringency but not with the error term Brunnermeier and Levinson, The early literature based on cross-sectional data tends to reject the PHH, or even finds, counterintuitively, that economic activity is concentrated in regions with stricter environmental regulation.

However, for the majority of these studies the estimated coefficients are statistically and economically insignificant. In contrast, recent studies using panel data do find at least moderate pollution haven effects in general. This is notable in that it does not depend on the explained variable. Studies on plant locations e. These results indicate that it is important to control for unobserved heterogeneity.

Empirical investigations that control for endogeneity of environmental policy tend to find more robust evidence on moderate pollution haven effects. For example, Ederington and Minier and Levinson and Taylor find no significant effect of pollution abatement costs if they are treated as exogenous. If they model these costs, however, as endogenous, the authors do find a statistically significant effect.

Yet any instrument variable analysis is always an easy target for criticism, since it will be sensitive to the choice of instruments. Frankel and Rose use instruments to control for the endogeneity of income and trade and find no support for the PHH. As they use a cross-sectional approach, however, the authors cannot control for unobserved heterogeneity.

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What are the crucial factors for an empirical investigation testing the PHH? We found that the essential choices are which empirical methods are applied. It does not seem to matter whether these studies examine plant location decisions, investment or trade patterns. Early studies based on cross-sectional analyses typically tend to find an insignificant effect of environmental regulations, while recent studies using panel data to control for unobserved heterogeneity or instruments to control for endogeneity do find statistically and economically significant pollution haven effects.

Furthermore, recent studies try to incorporate the traditional sources of comparative advantage into the analysis and find that both factor endowments and environmental regulations jointly determine the trade-induced composition effect.

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These effects however tend to cancel each other out leading the researchers to conclude that this might be a possible explanation of the failure to find evidence on the PHH in earlier studies. In this section we conduct an empirical analysis in order to test for the pollution haven hypothesis. We choose to employ a panel study with aggregated data across countries and time.

Despite the potential problems of such a study that were mentioned in Section 3 and the motivation to find more robust evidence at the disaggregated level, we follow this approach for several reasons. The first reason is its simplicity. The study design is relatively simple, while still providing a comprehensive and transparent test on this hypothesis.

Moreover, this approach asks an interesting question: Whether a specific country or a specific group of countries tends to become a pollution haven for other countries and this is the question which dominates the public debate. Additionally, the high number of contributions to this type of study reflects the relevance of this approach examples include Heil and Selden, ; Antweiler et al. The analysis uses panel data on 95 countries during the period and regresses three measures of pollution on trade intensity, hence controlling for income per capita, year and country specific effects and indirectly also for population growth by employing the dependent variables in per capita terms.

The empirical specification applied in this analysis follows recent studies such as Heil and Selden , Cole , Frankel and Rose , and Abdulai and Ramcke in employing the standard EKC framework with trade as an additional explanatory variable to test for the PHH. The model specification is given as follows:. Unobserved heterogeneity is a potential problem.

It refers to omitted variables that are fixed for an individual at least over a long period of time.


If the unobserved heterogeneity is correlated with the explanatory variables, OLS is biased and inconsistent. Fixed Effects FE could be employed to obtain consistent results. If the unobserved heterogeneity is uncorrelated with the explanatory variables, OLS is unbiased and consistent. In this case, we might still employ Random Effects RE in order to overcome the serial correlation of panel data and thus improve efficiency. We use a Hausman test to test the null hypothesis that RE is consistent. In some cases we cannot reject this hypothesis.

However, throughout our analysis we report estimation results for both fixed and random effects. Two methodological issues arise. Some authors such as Stern et al. First, heteroskedasticity might be present due to the large variations in the income and environmental variables. Therefore we apply a modified Wald statistic for groupwise heteroskedasticity following Greene, , p. In all regressions we can reject the null hypothesis of homoskedasticity. The second issue concerns serial correlation. In order to control for this, we employ a Wooldridge test for serial correlation in panel-data models Wooldridge, , p. In sum, we test for heteroskedasticity and autocorrelation and can confirm the presence of both conditions in all of the specifications. Therefore, we use robust standard errors in both fixed and random effects estimation. The RE specification uses robust standard errors see, for example, Cameron and Trivedi, , p.

Estimations over the full sample could mask different effects between countries, since the estimated trade coefficient only shows the average change in the pollution level over all countries, and it is not possible to derive implications for the PHH or FEH. The PHH would predict that trade increases pollution for low income countries and decreases it for high income countries.

Hence, the trade coefficient should be positive for low income countries and negative for rich countries. In contrast, the opposite should be true for the FEH under the assumption that poor countries are capital scarce and rich countries are capital abundant, and that pollution-intensive goods are also capital intensive in their production. The World Bank country classification uses GNI per capita to classify every economy into four income groups low income, lower middle income, upper middle income and high income World Bank, We follow this approach, but we divide the sample into three different income groups low, middle and high income , merging the two middle income groups into one middle income group.

Studies as Abdulai and Ramcke only use two income groups, low and high income groups. In our opinion such a separation is questionable. Recall that in terms of the PHH we expect to find differences between poor and rich countries. Rich countries tend to have strict environmental regulations, and therefore export their dirty good production to low income countries with lax environmental policy.

The division into low and high income countries means that middle income countries such as Mexico, Turkey, Brazil or Venezuela, which are often indicated as potential pollution havens in public debates, are incorporated into the high income group. If these countries are in fact pollution havens, separate regressions over low and high income samples are likely to show no support for the PHH, as the potential effects for the pollution havens are probably offset by the rich developed countries in the high income group.

For the PHH to be true we expect the trade coefficient to be negative for the high income group and positive for low and middle income groups particularly for the latter countries as they are often indicated to be pollution havens. The sample includes 95 developed and developing countries and covers the period Data availability is the criterion used to select the countries; those with no data on specific variables or too many missing values are not considered.

Our study uses the following variables: one dependent variable, environmental degradation; two direct measures of air pollution, CO 2 and SO 2 emissions; and one indirect measure of pollution, the energy consumption. All of them are measured in per capita terms to control for pollution generated by population growth. SO 2 dissolves in water vapor to form acid, and interacts with other gases and particles in the air to form sulfates and other components that can be harmful to people and their environment.

SO 2 contributes to the formation of acid rain and is linked with increased respiratory symptoms and disease, difficulty in breathing and premature death EPA, Sulfur dioxide data was obtained from Stern and are measured in kg per capita. Carbon dioxide, or CO 2 , emissions are those stemming from the burning of fossil fuels and the manufacture of cement. They incorporate carbon dioxide produced during consumption of solid, liquid as well gas fuels, and gas flaring. Carbon dioxide is one of the major greenhouse gases and CO 2 emissions play a central role in the global climate change debate.

Note that CO 2 is purely a global externality, whereas SO 2 is a local air pollutant. Data on energy consumption was also taken from WDI and is measured in kg of oil equivalent per capita. It is an indirect source of pollution, in particular air pollution. The consumption of energy and especially the burning of fossil fuels are the major causes of most air pollutants.

Therefore it is a useful approach to examine the effect of trade on energy consumption Cole, WDI additionally provided data on income, trade and population. The income measure is given by gross domestic product GDP per capita in purchasing power parity PPP terms in constant international dollars.

Total population was used to calculate emissions per capita. All the variables are in natural logarithms in order to make the variables less sensitive to outliers. The results for the full sample are presented in Table 6. We estimate equation 1 for SO 2 emissions by applying a FE regression with Driscoll-Kraay standard errors and a RE regression with robust standard errors due to the presence of heteroskedasticity and autocorrelation.

Following the result of the Hausman test, we cannot reject the null hypothesis that the RE estimates are consistent. The coefficients are only slightly different in magnitude in both specifications. The income terms show the expected EKC relationship. In the RE model, both terms are highly significant. This would imply that further liberalized trade would cause an increase in per capita SO 2 emissions on average. As mentioned, no implications for the PHH are possible. A regression over the full sample requires the effect of TRADE to be uniform across all countries, but the signs and magnitudes of the overall effects may mask important differences between countries.

If one wants to test the pollution haven hypothesis, one approach to do so is to divide the sample into income groups. The estimates change in the income group regressions see Table 7. The Hausman test indicates that RE is consistent. This is not the case for low income countries. There the signs are reversed. Surprisingly, the coefficients on trade are not as expected.

Only for high income countries do we find a positive relationship between trade and SO 2 emissions per capita, which is contrary to our expectations. This indicates that further trade liberalization increases SO 2 emissions for rich countries. However, no clear implications are possible as the results for middle and low income countries are insignificant. The results for CO 2 , which are presented in Table 8 , are similar to those of SO 2 for the whole sample. Again, we estimate equation 1 for CO 2 emissions by applying a FE regression with Driscoll-Kraay standard errors and a RE regression with robust standard errors.

The FE estimates are preferred due to the result of the Hausman test. The estimates of FE and RE specifications are nevertheless similar. TRADE is again positive and highly statistically significant, although small in magnitude, indicating that increased TRADE causes rising emissions on average ceteris paribus.

Estimation results for the full sample. Standard errors in parentheses. All the variables are in natural logarithms. Concerning income groups, for low and high income countries the Hausman test indicates that RE are consistent. Again, we find a statistically significant EKC relationship for middle and high income countries, but not for low income countries. For poor countries the GDP term is negative and insignificant, and its square term is positive and significant. On the other hand, we do find statistically significant evidence for pollution haven consistent behavior.

For low and middle income countries further trade liberalization will increase CO 2 emissions per capita, while it will decrease for high income countries. Following the predictions of the PHH this is exactly as expected. Estimation results for SO2 income groups. For the whole sample Table 6 , we follow the same approach as before FE with Driscoll-Kraay standard errors and RE with robust standard errors.

Both FE and RE are estimated and the estimated coefficients only differ slightly in size. Surprisingly, the results for the indirect measure of pollution are not at all consistent with the results for SO 2 and CO 2. All coefficients have the reversed sign. No EKC relationship is present. The TRADE coefficient is again small in size, but this time negative, implying that an increase in trade on average decreases energy consumption.

Next, we estimate both FE and RE for each income group. GDP and its square term are statistically significant in all specifications. Middle and high income countries experience first increasing emissions per capita with rising income and decreasing emissions with higher income increases.

1. Introduction

The opposite is found for low income countries; the GDP term is negative and its square term positive. For energy consumption per capita we can find evidence for the PHH. Trade will cause poorer countries low and middle income groups to increase their energy consumption per capita. On the other hand, rich countries high income group will reduce their energy use following further trade liberalization. Estimation results for CO 2 income groups. Econometric issues such as heteroskedasticity and autocorrelation complicated the estimations, and while we still employed methods to control for these matters robust standard errors , these issues might have weakened the quality of our estimation.

Regressions over the whole sample indicated a positive and statistically significant effect of trade on SO 2 and CO 2 emissions per capita the effect on energy consumption is negative but insignificant. With respect to the income group estimations, we could not find statistically significant results for SO 2 concerning the trade variable; thus, no implications on the effect of trade on sulfur dioxide emissions are possible. The results for CO 2 emissions per capita and energy consumption per capita are more optimistic.

In general, both dependent variables show consistent results, and the findings are as expected. We do find moderate support for the pollution haven hypothesis.

Recycling, International Trade and the Environment An Empirical Analysis

Trade liberalization will cause increasing CO 2 emissions and energy consumption in low and middle income countries, while the opposite will occur in high income countries. However, this effect is marginal. For energy consumption per capita the effect is. Estimation results for energy consumption income groups. In general, our results are consistent with the findings of other empirical studies. Abdulai and Ramcke find moderate support for the PHH in their income group regressions for energy consumption as well however, their estimated coefficients are even smaller than our estimates in magnitude.

Cole finds support for the PHH; according to his estimates; low income countries will increase their energy use and high income countries will decrease their energy use as a consequence of further trade liberalizations. Similarly, Heil and Selden conclude in their analysis of CO 2 emissions that increased trade intensity causes falling emissions for high income countries and rising emissions for low and middle income countries.

To answer the central question of this paper: Does trade liberalization cause poor countries to pollute more, while causing rich countries to become cleaner? Due to the simplicity of the empirical analysis, we do not claim to have found a clear-cut answer to this question. As mentioned earlier, the aggregated data investigation could hide specific effects, and disaggregated data should be used to find clear evidence for the PHH.

Furthermore, we did not directly control for the role of factor endowments, which recent papers try to incorporate in their analyses. Additionally, advanced panel data methods might be able to find more robust evidence. Despite these limitations, our analysis gives a fair approximation on this topic and a rough idea of the direction of the effects of trade on the environment. This investigation is an attempt to answer the following questions: 1. Is trade good or bad for the environment in the context of the pollution haven hypothesis?. Do rich developed countries shift their pollution-intensive production to poor developing countries?

Is trade liberalization responsible for increased GHG emissions e. No clear-cut and unambiguous answer to the first two questions is possible, due to the complex relationship between trade and the environment. There are many intervening forces at work. In this paper we emphasized the role that income plays in the context of the effects of trade on the environment.