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Is liberalization of trade good for the environment? Evidence from India

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  • Kakali Mukhopadhyay

    (School of Environment, Resources and Development (SERD), Asian Institute of Technology, Pathumthani, Thailand)

  • Debesh Chakraborty

    (Department of Economics, Jadavpur University, Calcutta, India)

Abstract

A policy of trade liberalization is often suggested as a means of stimulating economic growth in developing countries. Given the potential benefits of trade liberalization policies, it is important to examine whether such policies are in fact in conflict with the environment as they accelerate economic growth. Two conflicting hypotheses emerge from the trade-environment debate. The first competing hypothesis states that increasing trade may encourage developing countries with weaker environmental protection to specialize in industries that create more pollution. This is referred to as the pollution haven hypothesis (PHH); the second hypothesis, known as the factor endowment hypothesis (FEH), predicts that trade liberalization will result in trade patterns consistent with the Heckscher- Ohlin-Vanek (HOV) theory of comparative advantage based on factor endowment differentials. The manifestation of PHH is in direct conflict with FEH. The present paper aims at testing both hypotheses, PHH and FEH, for India’s trade with the rest of the world and the European Union (15) during the 1990s when radical economic reforms were introduced. The input-output method is used and suitably modified to test both the hypotheses considering three pollutants, carbon dioxide, sulphur dioxide and nitrogen dioxide (CO2, SO2 and NOx). It is clear from the results that import-related pollution is much greater than the export-related pollution for India. The findings of the present work challenge the pollution haven hypothesis, arguing that liberalization of trade policy in India has not been associated with pollution-intensive industrial development. On the other hand, the study supports the factor endowment hypothesis thus confirming that the export-oriented labour requirements are much more in weight than its import counterpart. Hence India gains in terms of emissions from trade in both cases. The paper also suggests several policies.

Suggested Citation

  • Kakali Mukhopadhyay & Debesh Chakraborty, 2005. "Is liberalization of trade good for the environment? Evidence from India," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 12(1), pages 109-136, June.
    • Handle: RePEc:unt:jnapdj:v:12:y:2005:i:1:p:109-136
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    Cited by:

    1. Tariku, Lamessa, 2015. "The Impact of Trade Liberalization on Air Pollution: In Case of Ethiopia," MPRA Paper 84619, University Library of Munich, Germany.
    2. Sacchidananda Mukherjee & Debashis Chakraborty, 2007. "Environment, Human Development and Economic Growth after Liberalisation: An Analysis of Indian States," Working Papers 2007-016, Madras School of Economics,Chennai,India.
    3. Dinda, Soumyananda, 2018. "Growing Potential Business opportunity for Climate Friendly Goods and Technologies in Asia since 1997," MPRA Paper 93238, University Library of Munich, Germany, revised 2018.
    4. Jaafar, Abdul Hamid & Al-Amin, Abul Quasem & Siwar, Chamhuri, 2008. "A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy," MPRA Paper 10210, University Library of Munich, Germany.
    5. Taguchi, Hiroyuki & Fujino, Takeshi & Asada, Hidekatsu & Ma, Jui-Jun, 2022. "Environmental Kuznets curve on water pollution in Chinese provinces," MPRA Paper 116468, University Library of Munich, Germany.
    6. Saibal Kar & Devleena Majumdar, 2016. "MFN Tariff Rates and Carbon Emission: Evidence from Lower-Middle-Income Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(3), pages 493-510, July.
    7. Hiroyuki Taguchi, 2012. "The Environmental Kuznets Curve in Asia: the case of sulphur and carbon emissions," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 19(2), pages 77-92, December.
    8. Dinda, Soumyananda, 2018. "Climate Friendly Goods and Technology Trade: Climate Mitigation Strategy of India," MPRA Paper 93031, University Library of Munich, Germany, revised 2018.
    9. Jayanthakumaran, Kankesu & Verma, Reetu & Liu, Ying, 2012. "CO2 emissions, energy consumption, trade and income: A comparative analysis of China and India," Energy Policy, Elsevier, vol. 42(C), pages 450-460.
    10. Amin, Al & Siwar, Chamhuri & Huda, Nurul & Hamid, Abdul, 2009. "Trade, Economic Development and Environment: Malaysian Experience," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 32(3), pages 19-40, September.
    11. Al-Amin, Abul Quasem & Jaafar, Abdul Hamid & Siwar, Chamhuri, 2008. "A Computable General Equilibrium Approach To Trade And Environmental Modelling In The Malaysian Economy," MPRA Paper 8772, University Library of Munich, Germany.
    12. Wang, Zhenyu & Meng, Jing & Zheng, Heran & Shao, Shuai & Wang, Daoping & Mi, Zhifu & Guan, Dabo, 2018. "Temporal change in India’s imbalance of carbon emissions embodied in international trade," Applied Energy, Elsevier, vol. 231(C), pages 914-925.
    13. Jingxia Chai & Yu Hao & Haitao Wu & Yuemiao Yang, 2021. "Do constraints created by economic growth targets benefit sustainable development? Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 4188-4205, December.
    14. Ghani, Gairuzazmi M., 2012. "Does trade liberalization effect energy consumption?," Energy Policy, Elsevier, vol. 43(C), pages 285-290.
    15. Alper Yılmaz, 2023. "Carbon emissions effect of trade openness and energy consumption in Sub-Saharan Africa," SN Business & Economics, Springer, vol. 3(2), pages 1-28, February.

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