Abstract
This paper surveys the state of knowledge about the trade-related environmental consequences of a country's development strategy along three channels: (i) direct trade-environment linkages (overexploitation of natural resources and trade-related transport costs); (ii)' virtual trade' in emissions resulting from production activities; and (iii) the product mix attributes of a' green-growth'strategy (environmentally preferable products and goods for environmental management). Trade exacerbates over-exploitation of natural resources in weak institutional environments, but there is little evidence that differences in environmental policies across countries has led to significant' pollution havens.'Trade policies to' level the playing field' would be ineffective and result in destructive conflicts in the World Trade Organization. Lack of progress at the Doha Round suggests the need to modify the current system of global policy making.
Highlights
⋆This is a revision of a paper prepared for the conference “Green Growth: Addressing the Knowledge Gaps”, Mexico, January 12-13, 2012
A well-developed growth literature leading to the Hartwick (1977) rule has established that growth is sustainable in the face of declining natural capital when natural capital is not an essential input
Where does trade enter into a ‘green growth’ strategy? From the perspective of a trade economist it begins with the ‘Columbian exchange’ when, starting in the 15th century, global trade transformed the planet into a single ecological system that has had a profound influence on ecological diversity and indirectly on the exhaustibility of natural resources
Summary
When opening a natural resource (e.g. timber or buffalo hides) to trade, the resource price becomes determined on international markets and is no longer self-regulating (or self-regulated?). If natural resources were not geographically concentrated, an opening to trade could lead to an all-around increase in welfare as comparative advantage would lie in the North (i.e. the country with a better property rights regime) and the fall in the resource price in the South would lead to an improvement in the property rights regime in the South as the returns to cheating would fall (Copeland and Taylor (2009)). Trade would lead to a loss of natural capital and to negative ‘genuine savings’, possibly resulting in an unsustainable development path In this case, cooperation from importing countries (presumably with better institutions) would help alleviate the resource curse problem. In a large sample of 133 countries, Amin and Djankov (2008) find that the proclivity to undertake micro-reforms that reduce trade distorting regulation is much lower in countries whose exports are more concentrated in abundant natural resources. 9
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