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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.

Reviews:

"Copeland and Taylor have opened the way to a better dialogue between economists and environmentalists. Their book will surely take its place on the shelves of trade economists and environmentalists."--James Anderson, Journal of International Economics

"[A] well-written book. . . . As Copeland and Taylor make clear, there is a good deal of scope for additional research on the topic of trade and environment, and this book provides a great starting point for such research."--Josh Ederington, World Trade Review

"This book is systematically developed and well presented."--Richard N. Cooper, Environment

"This book takes 'trade and the environment' from toddling to a brisk walk and indicates that it has come of age as a subfield. . . . [It] strives, very successfully, to link its theory to empirical work."--Martin Richardson, Economic Record

Endorsements:

"This well-written book goes right to the jugular, presenting an integrated, coherent view of the 'trade and environment' issue. The authors, who are well known in the field, are right in not taking sides other than when opinions flow from logically consistent argument."--James Cassing, University of Pittsburgh

"This book provides a unified presentation of important themes relating to international trade and the environment. There is no team better qualified to write such a book, and there are no close substitutes to this book. Copeland and Taylor provide economic intuition where possible, and their mathematical derivations are detailed and easy to follow."--Larry Karp, University of California, Berkeley

TABLE OF CONTENTS:
Preface vii
Chapter 1: The Trade and Environment Debate 1
1.1 Globalization and the Trade versus Environment Debate 1
1.2 Two Questions and a Preview of Our Answers 2
1.3 Our Method of Analysis 6
1.4 Plan of the Book 9
Chapter 2: Pollution in a Small Open Economy 12
2.1 Technology 16
2.2 Equilibrium along the Net and Potential Production Frontiers 26
2.3 Scale, Composition, and Technique Effects 45
2.4 Endogenous Pollution Policy 56
2.5 Conclusion 65
Chapter 3: Is There an Environmental Kuznets Curve? 67
3.1 Equilibrium Pollution and the Environmental Kuznets Curve 71
3.2 Sources of Growth 74
3.3 Income Effects 78
3.4 Threshold Effects 86
3.5 Increasing Returns to Abatement 97
3.6 Conclusion 104
Chapter 4: Trade Liberalization and Environmental Quality 107
4.1 Trade Frictions 110
4.2 Trade Liberalization with Rigid Pollution Policy 112
4.3 Trade Liberalization with Flexible Pollution Policy 123
4.4 The Political Economy Motive 132
4.5 Conclusion 139
Chapter 5: Pollution Haven Models of International Trade 142
5.1 Exogenous Policy Differences: Rigid Emission Intensities 146
5.2 Exogenous Policy Differences: Marketable Permit Systems 153
5.3 Endogenous Pollution Havens 158
5.4 Global Pollution and the World Composition Effect 164
5.5 Environmentally Friendly Pollution Havens 170
5.6 Northern and Southern Institutional Differences 171
5.7 Conclusion 183
Chapter 6: Factor Endowments, Policy Differences, and Pollution 187
6.1 Exogenous Policy: The Role of Factor Endowments 189
6.2 Endogenous Policy: Factor Endowments and Comparative Advantage 196
6.3 Correlated Characteristics: Being Rich and Capital Abundant 200
6.4 An Illustrative Example 206
6.5 Conclusion 213
Chapter 7: Is Free Trade Good for the Environment? An Empirical Assessment 215
7.1 Three Questions That Deserve an Answer 220
7.2 The Pollution Data 223
7.3 Deriving the Reduced Form 227
7.4 From Theory to Estimation 239
7.5 Empirical Results 250
7.6 Alternative Specifications and Theories 261
7.7 Conclusion 271
Chapter 8: Summary and Conclusions 275
8.1 Flexible Pollution Policy 275
8.2 Growth Is Not Trade 276
8.3 The Pollution Haven and Factor Endowments Hypotheses 277
8.4 Directions for Future Research 280
References 285
Index 291
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