How Can Trade Liberalization Be Conducive to a Better Environment?

This article surveys trade and the environment literature from the perspective of the impact of trade liberalization on the environment. Many theoretical and empirical studies that investigate this subject with different modelling approaches provide evidences for two possible outcomes: (1) trade liberalization generates positive environmental side effects, and (2) trade liberalization increases the environmental degradation. Thus, a universal conclusion related to the environmental impact of trade liberalization will be dubious; the outcome depends on many country-specific factors such as development level of countries, their comparative advantage, the resource intensity of the traded product, current level of environmental awareness, and the existence of environmental policies. The contribution of our survey is to highlight the conditions under which the environmental impact of trade liberalization policies will be positive both locally and globally. This should be a very valuable piece of information.