2- Impact of Trade Liberalization on the Environment
The debate regarding the potential affects of environmental pollutants is important to
quantify and operationalize correctly because trade liberalization may induce developing
economies to specialize in industries that have excessive pollution outputs. Highly pollutant
industries are sometimes the ones that experience the highest growth after trade liberalization
policies have been implemented.
There have been mixed findings regarding the positive and negative impacts of trade
openness on the environment. Some models have found a significant negative correlation
between trade openness measures and increases in pollution measures.
The work of Copeland and Taylor ( 1994) is an example of a theoretical model that looks
at cost utility measures and their impact on how trade deregulation affects environmental
conditions. Their model uses a North-South framework in which there are large differences
between the income of northern countries and those of the south. This framework provides an
important understanding of how income disparities in a region can lead certain economies to
become severely affected by fluctuations in trade openness while others have negligible effects
based on their preexisting economic framework. In their model the Northern economies have
more human capital and are more developed than those of the south. Their econometrics model
shows that certain economic conditions such as differences in labor (the South has less
developed capital and therefore supplies less effective labor) leads trade openness to have a
negative effect on the environment. The Copeland et al econometrics model constructed the
variable of pollution as a representation of demand and supply curves. They assumed that
Northern and Southern consumers had identical utility functions in terms of consumption of
products and environmental degradation. They also controlled for a country’s size and
Convention