INFLUENCE OF TRADE AND INVESTMENT ON ENVIRONMENTAL PERFORMANCE OF COUNTRIES

Abstract

Can Global Trade liberalization have adverse Environmental Repercussions? Does International Trade weaken Environmental Policy? Have the developing countries engulfed themselves into an Environmental Race to the Bottom? These questions are recurring whenever global debate on Climate Change take place and hence warrant a deeper examination of the interrelationship between openness indicators (trade and investment) and environmental performance of a country. While managing the balance between environmental constraints and economic impacts has been an ongoing dilemma across nations, emerging economies seem to be more inclined towards seeking better growth opportunities as opposed to seeking environmental sustainability. The developed countries however tip in the favour of environmental sustainability, relatively more than emerging economies, in the environment – opportunity trade off. As nations develop, their willingness to favour environmental preservation improves (Kuznets Environmental Curve) but developing countries rarely shy away from using their lax regulatory standards (viz-a-viz pollution abatement) as a means of attracting Investments and making their exports relatively more competitive. To what extent could trade and investment, therefore, influence/compromise the Environmental Performance of the country? The paper examines this question with an empirical analysis.