Modeling trade and environmental interactions

Interactions between trade and the environment have been studied extensively as a reaction to the pressure that the accelerated pace of globalization is placing on environment and trade. Distinguishing itself from previous studies, this research addresses issues, methods and policy implications concerning the interrelationship between trade and environment first in a comprehensive literature survey, and then focuses on a modeling analysis on the interactions between trade and the environment in China.;The literature review provides a perspective on received and future research by employing a dual approach: not only are major issues concerning trade and environment analyzed, but also progress in the methods necessary to examine those issues is assessed. In both parts, the attempt has been to suggest new possibilities for research and policy goals.;To investigate the interactions between trade and the environment in the Chinese case, a nonlinear simultaneous equations trade and environment model (TEM) is developed. The theoretical framework of the TEM is an expansion of Dean\u27s (1999) four equation model by adding international trade and foreign direct investment relationships. This model can be used not only to analyze the trade impact of an environmental policy and the environmental impact of trade, but also to identify the sources of those influences. In addition, the nonlinear specification of the relationship between emissions and economic scales allows for an explicit test of the environmental Kuznets curve.;The TEM is estimated with a Chinese provincial panel data set. The empirical results suggest that there may indeed have existed a tradeoff between economic growth and environmental protection in China\u27s development. That is, increased trade and rapid economic growth may have led to more pollution emissions on the one hand, while environmental policies may have led to reduced economic growth and reduced trade on the other. Policy alternatives to mitigate these negative impacts are also explored here