The Impact Of Environmental Regulation On Trade Pattern And Its Policy Harmonization

In the debate on globalization and the environment, there is concern that the erasing of national borders through reduced barriers to trade will lead to a delocation of dirty industries in countries with lower standards and hence influence the trade patterns. The purpose of the dissertation is to discuss the interaction between trade liberalization and environment, as well as provide a theoretical background decisions on this issue.The thesis addresses the relation between environmental regulation and trade patterns. The dissertation is arranged for five sections. Section 1 is the introduction. It outlines the significance, focus, purpose and methodology of the research. Section 2 is the literature review for analytical framework, theoretical development and empirical studies, which deals with the theoretical and empirical analysis on how environmental regulation distorts the comparative advantage and specialization as well as the impact of environmental regulation on location of pollution industries. Section 3 is the theoretical framework. We use the model constructed by Copeland and Taylor (2003). Based on above work, the model can be broadened to the potential motives for trade to demonstrate that differences across countries in other characteristics can also influence relative production costs. The paper focuses on differences across countries in the capital stocks and labor forces because these differences are at the basis of the factor endowments hypothesis. The paper examines how difference in income levels (the measurement of environmental policy differences) and factor endowments interact to determine the trade pattern. In Section 4, we present empirical work estimating the direction and strength of environmental regulation on international competitiveness from the world perspective. We employ the theoretical framework in Chapter 3 to develop a simple reduced form estimating equation of linking industry competitiveness, environmental regulation and factor endowments. This equation is then estimated using the data set of SO2 pollution emission on a 42 developed and developing countries over 1980 to 1998 period. We also carry out separate tests using each of the pollutants of water, air and land. Trade liberalization and environmental regulation can be harmonized. But in reality, it is difficult to deal with it, so it is important to find the alternative solutions. Section 5 looks at the international coordination of trade liberation and environment of China's case. We present empirical work estimating the direction and strength of environmental regulation on international competitiveness of China. We use the model similar to the chapter 4. Since there is no systematic research on China's case, the result will be of interest to policymakers.The main conclusion of the paper is as follows: (1) The result of the theoretical research shows that trade patterns are jointly determined by many factors. In the paper, we control income and factor endowments which determine the trade patterns, and the result depends the relative strength of these two factors. Since dirty industries are labor intensive, so the difference of environmental regulation alone doesn't imply that dirty industries will immigrate to less strict countries. (2) The result of the empirical research shows that the impact of environmental regulation alone is not obvious. Environmental regulations seem to have few effects on international competitiveness, thus the development strategies that rely on lax environmental regulations to achieve economic goals for developing economies may not be appropriate. On the...