Is Free Trade Good for the Environment

This paper investigates how openness to international goods markets affects pollution concentrations. We develop a theoretical model to divide trade’s impact on pollution into scale, technique and composition effects and then examine this theory using data on sulfur dioxide concentrations from the Global Environment Monitoring Project. We find international trade creates relatively small changes in pollution concentrations when it alters the composition, and hence the pollution intensity, of national output. Our esti-mates of the associated technique and scale effects created by trade imply a net reduction in pollution from these sources. Combining our estimates of scale, composition and tech-nique effects yields a somewhat surprising conclusion: freer trade appears to be good for the environment. (JEL F11, Q25) The debate over the role international trade plays in determining environmental outcomes has at times generated more heat than light. The-oretical work has been successful in identify-ing a series of hypotheses linking openness t