Trade and the Environment in Developing Economies

López Ramón and Michael A. Toman

in Economic Development and Environmental Sustainability

Published in print June 2006 | ISBN: 9780199298006
Published online September 2006 | e-ISBN: 9780191603877 | DOI:

Series: Initiative for Policy Dialogue Series

 Trade and the Environment in Developing Economies

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This chapter studies the relationship between international trade, capital mobility, and environmental quality in developing countries. Although the ‘pollution haven hypothesis’ has dominated much of the discussion of the composition effects of trade between rich and poor countries, this paper argues that it is not supported by empirical evidence. Regardless of environmental policy, trade liberalization may still shift the development path towards environmentally-intensive activity in countries with a comparative advantage in this area. This paper also considers the fundamental differences between environmental problems associated industrial pollution emissions, and those that affect stocks of natural capital, such as fisheries and forests. In addition, it examines the effects of linkage between trade policies and environmental concerns in developing countries. Section 1 discusses the role of the environmental policy process and institutions, and how they interact with the trade regime. Section 2 reviews the empirical evidence on the effects of environmental policy on trade patterns, and the evidence on the effect of trade on environmental quality. Section 3 considers policy issues.

Keywords: international trade; trade pattern; environmental policy; pollution haven effects; political economy; property rights; capital flows; policy regimes; institutions

Chapter.  18034 words. 

Subjects: Economic Development and Growth

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