The Empirical Relationship between Trade, Growth, and the Environment

This note reestimates Grossman and Krueger’s (1993) SO₂ emissions regression, including regressors to capture the effects of scale, trade, and trade policy. Several new results are obtained. Increases in economic activity have a negative effect on the environment separate from changes in per capita income, whose relation to the environment is now positive and linear, not inverted U-shaped. The trade policy measure is not significant, but its effect is ambiguous a priori. Finally, in line with specialization patterns based on traditional sources of comparative advantage, pollution rises with the capital abundance of a country (since this favors capital-intensive and generally dirtier industries) and falls with increases in labor and land abundance.

(JEL classifications: Q2, O1, F1