International trade and environmental quality: a survey

International trade has been incorporating various aspects of environmental issues since 1970. The extent to which environmental problems might affect many facets of trade, or vice versa, has been the subject of considerable debate over these years. In this article we have attempted to establish some of the links between international trade and environmental quality by performing a comprehensive literature review. We discuss issues such as establishing direct and indirect effects of international trade on environmental quality, effects of trade on economic development, environmental quality, and energy and their relation with each other, and, finally, the role of governments and international organizations in this context. Studies have so far revealed some linkages between trade and environment through conventional trade theory. However, interactions between international trade and types of pollution, their sink and assimilative capacity need to be analyzed using a general equilibrium approach. Currently, very little knowledge and agreement on the nature of interactions between trade theories, development process and environmental quality exist. Existing studies have shown that the structure of environmental regulations should be modified to reflect the existence of trade under imperfect competition. Therefore, further research on the interaction between new trade theory and environmental regulation is needed. Also, theoretical and quantitative analysis regarding the effects of environmental regulations on competitiveness and location decision is needed. The intensity and type of environmental measures vary across issues and countries. Therefore, harmonizing environmental measures creates an inefficient atmosphere, and to assume that trade restrictions will either improve or reverse the environmental damages is a serious mistake. Given the dynamic and intricate nature of the problem, trade and environment debate continues despite vast research and poses a challenge for researchers and policy makers in the foreseeable future. © 2000 Elsevier Science B.V. All rights reserved.