Handbook on Trade and the Environment
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Handbook on Trade and the Environment

Edited by Kevin P. Gallagher

In this comprehensive reference work, Kevin Gallagher has compiled a fresh and broad-ranging collection of expert voices commenting on the interdisciplinary field of trade and the environment. For over two decades policymakers and scholars have been struggling to understand the relationship between international trade in a globalizing world and its effects on the natural environment. The authors in this Handbook provide the tools to do just that.
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Chapter 10: The Impact of Open Trade and Investment Regimes on Environmental Outcomes in East Asia’s Capitalist Developmental States

Michael T. Rock and David Angel


Michael T. Rock and David Angel Introduction The burgeoning literature on trade and the environment suggests that the impact of openness to trade and investment on the environment depends on whether positive technique effects are large enough to overcome the negative scale and composition effects of openness. Copeland and Taylor (2003) suggest that they are, at least for SO2, while Managi (2007) argues that these results do not hold for developing economies. Our contribution to this literature takes a decidedly different tack by demonstrating that in the rapidly developing East Asian newly industrializing economies these technique effects depend on a development strategy and a set of institutions and incentives that encourage local firms to invest in the hard slog of building their technological capabilities, including their environmental capabilities. Our argument proceeds in three steps. The first section describes the evolution of the two major institutional innovations in this group of economies – the capitalist developmental state, which emphasizes technological learning through the export of manufactures, and policy integration, or the integration of environmental policies and institutions with the institutions of industrial policy. Our aim is to demonstrate how capitalist developmental states in this region harnessed technological learning around the export of manufactures and the practice of policy integration to reduce environmental intensities expressed as environmental impact per unit of output. The second section demonstrates, through industry and firm-level examples, how this particular configuration rewarded firms investing in technological learning to reap the positive technique effects...

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