What do we know about the interactions between trade and the environment?

Abstract

Does trade liberalization increase (global) environmental degradation? Do environmental regulations hinder the competitiveness of domestic industries against their foreign rivals? Can trade policies be used as an enforcement tool for the international environmental agreements to protect the global environment? We present a survey of the trade and the environment literature from these perspectives. Mainstream economic argument- that free trade is beneficial to every participant has been questioned by many authors who formally consider environmental consequences of trade liberalization in their studies. Secondly, the supposedly adverse effects of environmental policies on international competitiveness have not been supported by empirical studies. Finally, it has been shown that free riding on the contribution to global environmental protection of other countries becomes less likely when the countries are trade partners to each other.