Climate Change / Energy Economics

The World Trade Network and the Environment

Dr maria

Dr Maria Jesus Herrerias, University of Birmingham, Carlos Aller, University of Girona, and Lorenzo Ductor, Middlesex University London, examine the role of the world trade network on the environment and discuss their investigation into an innovative way of measuring the effect of international trade. 

In a growing, integrated and globalised international market, sustainable development and environmental protection arise as goals of the World Trade Organization (WTO), jointly with their objectives to reduce trade barriers and eliminate discrimination in international trade relations.

The World Trade Organisation allows members to ‘adopt trade-related measures to protect the environment and human health and life’[i]. This concern comes from the fact that international trade arises as one of the most relevant factors affecting the environmental quality of a country.

The effect of trade on environment is ambiguous and complex. However, on one hand, a higher volume of trade may result in a higher Gross Domestic Product (GDP) which in turn leads to higher pollution and/or in a change in the sectoral composition of a country with harmful consequences to the environment. On the other hand, this change can be beneficial to the environment. Additionally, the use of cleaner techniques of production motivated by the increase in trade may have positive consequences on the environment.

Environmental economists have studied all of these effects – globally called direct effects, for specific countries or for groups of them.

Our research proposes an innovative way of measuring the effect of international trade on environment, as measured by the carbon dioxide emissions for each country. The progressive elimination of barriers have resulted in an important surge of trade relations between countries these last few years, creating a dense network of bilateral export and import relations among them. As a consequence, considering trade as a mere sum of the bilateral exports (or imports) that each country has with the rest of the countries seems incomplete.

Additionally, we recommend evaluating the indirect effects of trade on environment.  These effects are captured by the position of the country in the world trade network. Hence, each country is not only affected by its bilateral trade with the rest of the countries, but also by the bilateral trade of its partners and its partners’ partners.

We propose two different effects as an indicator of the relevance of a country in the network:

Congestion externalities: a reduction of capacity to import environmentally friendly goods, energy efficiency technology or services from trade partners owing to an increase in trade among them. This effect is prevalent in developed economies.

Market power: an increase in trade between a country’s trade partners may increase the bargaining power of this country, which could be translated into greater market access to improve its environmental quality. This effect is prevalent in developing economies.

These results should be taken into account in the design of international trade agreements that care about the environmental consequences of a trade liberalisation.

The full paper, analysing the role of the world trade network on the environment, is available to read here

[i] https://www.wto.org/english/docs_e/legal_e/gatt47_e.pdf

 

 

Maria Jesus

Dr Maria Jesus Herrerias, Lecturer in Energy Economics, Department of Economics, University of Birmingham.

Dr Herrerias is an expert in Chinese studies based on economic growth, international trade and regional development. She also works on energy and environmental issues in the case of developed and developing countries with emphasis on China. Her main works have been published in China and World Economy, Economics of Transition, Empirical Economics, and Economic Modelling. She has presented her works in conferences such as the Royal Economics Society, the Chinese Economic Association (UK), the European Trade Study Group, among others, and has received invitations to participate in conferences including the Asian Economic Panel in Tokyo in 2011.

Dr LorenzoDr Lorenzo Ductor, Senior Lecturer in Economics, Middlesex University London

Dr Lorenzo’s area of specialisation is applied econometrics with research interest in social networks, personnel economics, business cycle synchronisation, trade and financial development. He has published in leading journals such as The Review of Economics and Statistics, The Oxford Bulletin of Economics and Statistics and Energy Economics.

 

Dr AllerDr Carlos Aller, Researcher in Economics, University of Girona

Dr Aller is a researcher in Economics. His main fields of research are Household Finance, Applied Microeconomics, Banking and Energy and Environmental Economics. He has published his papers at Journal of Empirical Finance and Energy Economics.

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