Environmental Consequence of Trade Openness for Environmental Goods

Abstract

With the increasing concerns on detrimental environmental effects of world trade, WTO member countries in 2001 called for reduction or elimination of tariffs and non-tariffs barriers on Environmental Goods and Services (EGS) claiming that would improve environmental protection and economic development simultaneously. The study investigated the impact of opening trade of EGS on environmental quality estimating pollution functions of Sulphur Dioxide (SO 2), Nitrogen Oxides (NO x) and Carbon Dioxides (CO 2) using cross country data for 62 countries. Estimated SO 2 pollution function revealed that elimination of tariff on EGS trade result in falling SO 2 emissions in comparison to increasing SO 2 pollution as a result eliminating tariff on non EGS trade. Findings formally support for the liberalization of EGS. Falling of SO 2 pollution due to elimination of tariff on EGS is due to differences in countries' capital-labour endowments. The findings suggests that falling pollution due to EGS trade liberalization has no relationship with the income level of the countries, but favour capital abundant countries in reducing the pollution emissions.