Is Trade Good or Bad for the Environment?

Abstract

The study adds to the argument of whether trade is good or bad for the environment by looking at the impact of trade on the environment in the presence of the level of income as a moderating variable, using both the EKC and the pollution haven hypothesis. The study used both the OLS and IV because OLS estimates rely on all of the natural variations that exist across the entire sample, while IV estimates are derived only from the variation attributable to the (exogenous) instrument. The study discovered that trade reduces SO₂ micrograms per cubic meter among the countries selected for the study. The study found a similar result with the OLS when using IV, but the difference is that under the OLS, trade openness (intensity) greatly affected SO₂ since it was significant at a 1% level of significance, while trade openness (intensity) moderately affected SO₂ because it was significant at a 10% level of significance. The study also found out from the pollution haven hypotheses that all countries selected, both OECD and non-OECD, are not at a trade disadvantage and rich countries do not transfer emissions to poor countries via trade advantage. The assertion that trade inspires some countries to concentrate on unclean environmental products was rejected.