ENVIRONMENT AND GLOBALIZATION: What are the factors influencing this relationship?

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ENVIRONMENT AND GLOBALIZATIONWhat are the
factors influencing this relationship?
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Major environmental issues

• climate change
• global warming (Greenhouse effect)
• thawing of icebergs, precipitation change,
  droughts and floods, sea-level increase
• ozone layer
• acid rain
• biodiversity erosion
• world health problems
• agriculture
• global waste
• ? Negative externalities of human activity

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Environment

• Environment can be viewed as

The complex of physical, chemical, and biotic
factors (as climate, soil, and living things)
that act upon an organism or an ecological
community and ultimately determine its form and
survival
The aggregate of social and cultural conditions
that influence the life of an individual or
community.
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Economic globalization (i.e. trade
liberalization) is often accused of being largely
responsible for the increasing world pollution
levels in the last decades.

• Lack of convincing evidence that freer trade
  harms the environment per se
• Example 1 former communist countries of CEE
• Example 2 Import quota in the US on Japanese
  cars
• Example 3 shrimp farming along the cost in
  South-East Asia and Latin America

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In fact, it appears that the net effect on
domestic pollution, deriving from the opening of
any individual country to world commerce, is
determined by the configuration of three basic
factors within the country itself, which are
Environmental policies implemented by its
government
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Income
Comparative advantages
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Environmental policies

• Environmental policies pursued by governments
  reflect the relative value the society places on
  environment.
• In developed countries, the costs of complying
  with environmental regulations have been steadily
  increasing.
• Growth of income seems to have knock-on effects
  on stringency of environmental regulations.

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INCOME EFFECT
? in real income
? in the demand for environmental quality
? in pollution
If freer trade enhances income, it is likely to
lead to improvement in environmental standards
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Income

• Income is the determining factor in models
  examining environmental policies.

As shown above, the income effect tends to push
up environmental quality levels as soon as the
quality of the environment is considered as a
commodity.
In addition it is also a key element of theories
considering environmental policies as influential
in determining comparative advantages. The
example below displays the Pollution Haven
Hypothesis
Weak policies
Low income countries as the most likely and
convenient location for the manufacturing of
goods made through polluting processes
low income levels
Strong policies
Hight income countries as the less likely and
convenient location for the manufacturing of
goods made through polluting processes
hight income levels
They exporting manufacturing of goods made
through polluting processes to low income
countries
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Comparative advantages

• Disparate views on how much the environmental
  policies can affect comparative advantages

Pollution Haven Hypothesis
2 different theories
Factor Endowments Hypotesis
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We can adopt a simple model to test these
theories.

• MODEL XY

2 countries (North and South) which can differ in
factorial equipment OR environment policies, but
are the same as regards the rest
X
is obtained through a pollution causing process
2 products
Y
Demand for the two products is the same in both
countries
Supply takes different values according to the
referred country because of differences in
factorial equipment
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Pollution Haven Hypothesis
South Weak type of policy
Same factorial equipment
North Stringent Policy
Opening of markets stimulates a growth of Product
X industries in South, because pollution
undergoes a lower taxation there compared to
North, and hence the costs are lower. On the
contrary, North specializes in the production of
the clean type of product
South is an importer of Product Y
On the international market
North is an importer of Product X
Pollution grow in South because a large portion
of the polluting production processes moves
there.
becomes important to South to consider future
environment policy interventions, like the
internalization of the negative externalities
linked to pollution.
Pollution decreases in North, where the
advantages given by commerce are summed to those
deriving from an improvement of the environmental
quality
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Factor Endowments Hypotesis
South Labour Abundant
Equal environment policies
North Capital Abundant

• X is Capital Abundant

North will see grow considerably its pollution
levels.
South will see an increase in environmental
quality.
Apart from adopted environment policies, a rising
of pollution level in a certain country can be
due to endogenous reasons, such as the existence
of a particular comparative advantage.
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Unhelpful simplification

• Since the simple models do not provide a
  clear-cut answer, a number of authors deployed
  sophisticated empirical analyses to test the
  impact of environmental policies on trade
  patterns.

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Contradicting analyses

• Lucas et al. (1992) growth in pollution levels
  in developing countries strongest when OECD
  regulations strengthened.
• OECD review (1997) no convincing evidence
  proving the race to the bottom in environmental
  standards.
• Mani and Wheeler (1998) import-export ratio for
  dirty industries seems consistent with pollution
  haven hypothesis, but effects only temporary.

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Conclusion

• It is difficult to determine a model which can
  always be realistic and applicable.

In reality, changes in the so-called geography
of pollution are attributable to the interlacing
of different configurations of the 3 factors
examined above, as applicable to countries
participating on international commerce. However,
determination of the exact influence of these
factors seems to be an intractable issue.
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Reading

• Boyce, J.K. (2004) Green and brown?
  Globalization and the enviroment, Oxford Review
  of Economic Policy, 1, 105-128.
  http//www.economics.ucr.edu/seminars/spring04/05-
  28-04JimBoyce.pdf
• Bhagwati, J., In Defence of Globalization, Oxford
  University Press 2004, Cap. 11, 135-160
• WTO (1999), Trade and enviroment, www.wto.com
• Cole, M.A. and Elliott, R.J.R. (2003). Do
  Environmental Regulations Influence Trade
  Patterns? Testing Old and New Trade Theories. The
  World Economy , 26, 8, pp.1163-86.

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Reading for Next Class

• Australian Govenrment Bureau of Meteorology -
  The Greenhouse Effect and Climate Change, (pp.
  11-24) www.bom.gov.au/info/GreenhouseEffectAndCli
  mateChange.pdf