ABSTRACT
This chapter analyses how merchandise and services trade flows influence the per-capita CO2 emissions for 130 countries over 1980-2009 through the three aforesaid effects. If economic growth is accompanied by stricter emission abatement standards and stronger regulatory policies to contain the adverse climate change concerns, a more sustainable scenario might emerge through the technique effect. The possible trade emission correlation receives further support from the Pollution Haven Hypothesis (PHH) literature, which argues that foreign direct investments (FDI) inflows in a developing country may target the pollution-intensive sectors, thereby strengthening both the scale and composition effects. The PHH has been rejected by several studies, arguing that it is in the best interest of the foreign investor to bring greener technology rather than extracting the advantage of lax environmental standards. Cross-country panel data model evidence indicates that increased outward orientation generally leads to higher greenhouse gases (GHG) emissions and environmental degradation.
