EnvironmentalEffectsofInternationalTrade-Harvard.docVIP

Revised Jan. 9+ (with L tables) Jan. 26, 2009 (with Figs 12) For working paper, tables 67, could restore 4 (fixed effects,time) columns] Environmental Effects of International Trade Jeffrey Frankel Harpel Professor, Harvard Kennedy School Harvard University A Report for the Swedish Globalisation Council, Government of Sweden For presentation January 20, 2009, Stockholm Summary The report surveys the state of our knowledge regarding the effects of trade on the environment. A central question is whether globalization helps or hurts in achieving the best tradeoff between environmental and economic goals. Do international trade and investment allow countries to achieve more economic growth for any given level of environmental quality? Or do they damage environmental quality for any given rate of economic growth? Globalization is a complex trend, encompassing many forces and many effects. It would be surprising if all of them were always unfavorable to the environment, or all of them favorable. The highest priority should be to determine ways in which globalization can be successfully harnessed to promote protection of the environment, along with other shared objectives, as opposed to degradation of the environment. The report considers whether globalization has damaged environmental goals. Trade has some of its effects through the channel of accelerating economic growth, because trade contributes to growth analogously to investment, technological progress, and so on. Other effects come even when taking the level of income as given. In the case of each of the two channels, effects can be either positive or negative. Concerning effects via the income channel, a common finding is the so-called Environmental Kuznets Curve: a loose U-shaped relationship between income and environmental quality. At early stages of economic development, growth brings a deterioration in the environment. But then after a particular peak level is reached further gr