Does Trade Liberalization Reduce Pollution Emissions?

Literature on trade liberalization, economic development, and the environment is largely inconclusive about the environmental consequences of trade. This study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique. Trade is found to benefit the environment using a globally representative sample. A 1% increase in trade openness causes a decrease of 0.344%, 0.754%, and 1.909% for SO2, CO2, and BOD emissions, respectively, in the long term. Our results also show composition and scale-technique effects contribute differently to the overall effect in the short and long term.