Environment and trade – where are we now?

Abstract

The last ten years have seen an upsurge in interest in the nexus of trade and environmental policies. This reflects in part the need to deal with major global pollution problems, and in part concerns that globalisation may have adverse impacts on the environment. In this paper I concentrate mainly on the second issue, and review what recent economic literature has to say about it. I begin with conventional trade models in which government bodies have perfect information and are welfare maximisers, and show that this analysis does not provide much support for the concern of some of the proposed policy recommendations. I then turn to more recent models of political economy and imperfect information to see whether they provide a better explanation for the concerns and policy recommendations.