Essays in Honour of Peter Lloyd, Volume I
Edited by Sisira Jayasuriya
Chapter 11: Trade liberalization, resource degradation and industrial pollution in developing countries
Ian Coxhead and Sisira Jayasuriya1 1. INTRODUCTION Economic growth and trade are generally said to have three types of environmental eﬀects: scale eﬀects, associated with increases in the overall size of the economy; technique eﬀects due to changes in production technology; and composition eﬀects, capturing induced changes in the structure of production and factor demand (World Bank, 1992; Grossman and Krueger, 1993). Of these, the ﬁrst is unambiguously negative (in the sense of creating more pollution or increasing demands on depletable natural resource stocks), and the second is most likely to be positive since new technologies are by and large cleaner than old. Aggregate empirical studies of the nonlinear relationship between income and pollution or demands on depletable resource stocks (the search for an ‘environmental Kuznets curve (EKC)’ as in, for example, Antweiler et al., 2001) are driven by the changing relative importance of these two. But for many purposes, the greater interest is in the sign of the composition eﬀect, about which there are no general prior hypotheses. Whereas scale and technique eﬀects determine the shape of the EKC, changes in the structure of production – the sources of composition eﬀects – displace it vertically, and as such may have more immediate medium-run environmental impacts. The composition eﬀect is of particular importance in studies of trade policy reform since the primary eﬀects of such reform are felt through changes in relative prices, which in turn stimulate the reallocation of resources among...
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