Abstract
Increases in international trade have a variety of effects on the environment through the location, scale, and techniques of production. International trade may also have special effects on transboundary resources, such as international rivers as trade provides greater opportunities for policy coordination between trading partners who share a resource. This chapter discusses several mechanisms by which trade may facilitate coordination: trade may provide opportunities for linkage between environmental and trade concessions, facilitate implicit side payments, grant countries direct leverage over other countries’ production, and instill a perception of shared goals between countries. An empirical section reports a test of the effects of globalization (interpreted in the regression equations as overall trade) and trade specifically between countries sharing a natural resource. The United Nation’s Global Environmental Monitoring System (GEMS) provides data on water quality at river monitoring stations around the world. We have coded these stations to indicate whether the rivers cross international borders, and if so, which countries share the river. We then merged these data with information on bilateral trade between upstream and downstream countries and characteristics of these countries such as their income levels and trade openness. The results suggest that water pollution is lower in rivers shared between countries with more trade; supporting the hypothesis that trade promotes coordination of environmental policies.
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Notes
- 1.
They do not employ a multiple regression analysis, so omitted variables are a potential issue in evaluating their results. In addition, the direction of causality is difficult to sort out for some hypotheses.
- 2.
The empirical analysis presented here is based on Sigman (2004), which describes the methodology, data set, and sensitivity analyses in greater detail.
- 3.
The early papers in the environmental Kuznets literature are Selden and Song (1994) and Grossman and Krueger (1995). For a recent survey, see Stern (2004).
- 4.
For a formal model suggesting that the use of “sticks” may be more effective in protecting the environment than a reliance on “carrots” alone, see Chang (1997). Recent rulings by World Trade Organization tribunals suggest that countries may impose environmental trade restrictions without violating the General Agreement on Tariffs and Trade. For a discussion of the legal status of such trade measures, see Chang (2005).
- 5.
For a discussion of such trade measures, see Chang (1995). Countries may impose such restrictions without violating the General Agreement on Tariffs and Trade, as discussed in Chang (2005).
- 6.
It would be interesting to look at other pollutants, such as pathogens, that have a direct effect on human health. Pathogens, however, do not travel more than a few miles downstream, so cross-border spillovers are less important.
- 7.
The Penn World Table (Heston et al. 2001) provides annual income levels standardized for crosscountry comparisons.
- 8.
Although addressing this heterogeneity is desirable, country effects may absorb some relevant variation in pollution levels. If countries must set environmental policies at a national level, they may not be able to reduce pollution only on rivers shared with countries with whom they have an extensive trade relationship. They might still free ride, however, by choosing lower national pollution control than socially optimal. The effect of trade on these deviations will not be detected with country effects included.
- 9.
We constructed this variable using flow direction from the US Geologic Survey’s Global Hydro1K database. Hydro1K contains the direction that water flows in a grid of 1 km by 1 km cells (based on the cell’s altitude relative to its neighbors). The “flow accumulation” function of ArcView then makes it possible to estimate the upstream drainage area for all cells in the grid. Weighting the upstream cells by their estimated population returns a grid of total upstream population, which was then used to attribute upstream population to the location of the station. The upstream population values are noisy because the calculated location of the river (based on flow accumulation) sometimes does not correspond to its actual location. These differences might result from an insufficiently fine resolution of the Hydro1K flow direction grid. There is no reason to believe the inaccuracies are correlated with heterogeneity relevant to the analysis.
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Acknowledgements
This material is based in part upon work supported by the National Science Foundation under Grant No. 9876498. We are grateful to participants at the IFPRI conference and reviewers for helpful comments and to Conan Crum for his help with the empirical analysis.
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Sigman, H., Chang, H.F. (2010). Implications of Globalization and Trade for Water Quality in Transboundary Rivers. In: Ringler, C., Biswas, A., Cline, S. (eds) Global Change: Impacts on Water and food Security. Water Resources Development and Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-04615-5_5
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