Environment and Trade: A Review of Theory and Issues

This paper illustrates the major issues influencing interaction between environmental regulation and international trade by reviewing the empirical studies and theoretical results of the last 20 years. The second section of the paper discusses how environmental regulation distorts comparative advantage and specialization. The third part covers the impact of environmental regulation on the location of polluting industries. The fourth part covers transnational pollution and trade in wastes. The fifth section discusses major conflicts between trade policy and environmental policy. The final part addresses strategic environmental policy and international trade. Graduate School of International Relations, International University of Japan, Niigata, Japan and Department of Economics, University of California, Santa Barbara, CA 93106-9210, respectively. Please direct correspondence to the second author. This work was supported in part by U.S. AID cooperative agreement DHR-5555-A-00-1086 through the Midwest Universities Consortium for International Activities (MUCIA). Editorial assistance from Holly Korab, Sharon Graham and Ellen Maurer is gratefully acknowledged. This paper was prepared in large part during 1992-3. It is thus current as of that date.