Title

Environmental quality, international trade, and economic development: Theory and evidence

Date of Award

1994

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Douglas Holtz-Eakin

Keywords

Environmental quality, international trade

Subject Categories

Economics

Abstract

This dissertation presents a theoretical model and an empirical investigation of the relationship between environmental quality and economic development, focusing on the impacts of international trade on the development trajectory for environmental quality.

The theoretical model is developed under the assumption that a social planner chooses consumption goods, environmental quality, and pollution abatement to maximize social welfare. The model illustrates an inverted U curve for pollution-GDP trajectory, which is consistent with that derived from many complex dynamic models, and matches empirical evidence. The model also illustrates that when international trade is incorporated pollution (or dirty industries) may flow from richer to poorer countries. The low income countries should import pollution even at prices that are lower than the abatement cost, but only up to the point where a modified Samuelson condition holds.

The empirical study adopts a target adjustment model, in which pollution emission is a function of per capita GDP and international trade. The estimation results confirm the inverted U relationship between environmental pollution and development found in previous studies.

In contrast to previous empirical studies, however, the effects of trade are not limited to uniform shifts in the pollution-GDP trajectory. Rather, the empirical approach allows the impact of trade liberalization to differentially affect pollution levels in low versus high income countries. The point estimates suggest that a rich country may actually pollute more and a poor country pollute less as a country's openness to trade increases. However, these effects are not statistically significant, which provides independent confirmation of previous studies that the linkage of trade liberalization and environment degradation is not significant.

This dissertation also investigates the linkage between non-hazardous municipal solid waste emission and development. Using cross-country time series data, the random-effects estimation lends support to the monotonic relationship between municipal solid waste emission and economic development, suggesting a continuous increase of municipal solid waste emission to date, but with a diminishing marginal propensity to emit.

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