TRADE LIBERALIZATION AND ENVIRONMENT

Trade liberalization and Its Impacts on Environment

Trade liberalization and its Impact on Environment

Introduction

Trade generates economic benefits because, given free and efficient markets, it encourages trading partners to specialize in goods or services they have some comparative advantage in. Since developing countries often have abundant natural resources and cheap, plentiful labor, trade liberalization has fostered shifts toward labor and resource-intensive sectors such as mining, logging, garment manufacturing, and export crop production. Carbaugh (2004) mentions most of these sectors, however, generate significant environmental "externalities" (Carbaugh, 2004). These are environmental costs not reflected in the production costs of individual enterprises, be they farm households or multinational companies. The results of ignoring the true social costs of production are excessive production, resource consumption, and waste emission. This paper discusses trade liberalization and its impacts on environment in a concise and comprehensive way.

Trade Liberalization and Its Impacts on Environment

Proponents of globalization argue that many environmental problems can be countered by stimulating economic growth. A portion of the overall economic gain can be transferred to individuals and communities affected by environmental degradation (Carbaugh, 2004). Investments can be made to strengthen environmental institutions, and cleaner, more resource-efficient technologies can be developed and adopted. Based on studies of developed countries, proponents also point to the so-called "inverted-U" phenomenon. That is, although natural resource consumption and degradation increase as economies grow, an income threshold is attained above which demand for a better environment stimulates investment in environmental protection and rehabilitation (Robert and Jack, 1998). Degradation is thus reduced. Many developing countries, however, are so poor, population growth so high, and natural resources already so stressed, that catastrophic, perhaps irreversible, environmental damage may well occur long before any such threshold is reached.

Although environmental damage can be a by-product of globalization and trade liberalization, incentives for addressing its underlying causes are mixed. While developing countries suffer the greatest damage, they are also under the greatest pressure to accelerate economic growth to increase incomes and combat poverty. And since environmental policies and institutions are likely to be weak in developing countries, producers there (be they domestic or foreign) have little incentive to care about the environmental externalities of their actions. Rampant logging of the world's biodiversity- and carbon-rich tropical forests, for example, testifies to this. This raises concerns that globalization might create "pollution havens" in developing countries, where foreign investors operate to escape stricter environmental laws and enforcement ...