Trade liberalisation, economic growth and the environment

In spite of its brevity, this book provides a good insight into the complex relationship between trade liberalization, economic growth and the environment. The conceptual foundations are laid down in the first two chapters on the development of the General Agreement on Tariffs and Trade and the World Trade Organization, focusing on their treatment of environmental issues as well as the wider trade and environment nexus. The following three chapters are more empirically oriented and comprise the heart of the book’s analysis. Having realized that the major impacts of trade liberalization on the environment are likely to stem from increased economic growth, Cole devotes two chapters to exploring both the theoretical and, in particular, the empirical links between economic growth and the environment. This analysis culminates in an empirical assessment of the environmental impacts of the Uruguay Round agreements. The final chapter draws policy conclusions from the book’s analysis. The book’s most interesting and original chapter is the one on the environmental impacts of the Uruguay Round. It distinguishes between scale (increased economic activity), composition (sectoral composition of the economy) and technique (pollution intensity of the technology employed) effects. It uses estimates of income increases due to the liberalization of trade of the Uruguay Round to statistically predict the likely environmental effects ensuing. While many local air pollutants, water pollutants, chlorofluorocarbons and other environmental indicators are not taken into account, the study does demonstrate that global emissions of nitrogen dioxide, sulphur dioxide, carbon monoxide, suspended particulate matter, and carbon dioxide are likely to have increased. This is because emission increases in the developing South overcompensate for possible emission decreases in the developed North. Interestingly, when Cole tries to monetarily value the benefits from trade liberalization and the negative environmental impacts ensuing, he finds that the value of the increased environmental damage is likely to be drastically lower than the welfare gain due to the other beneficial effects of trade liberalization. This result leads to two important considerations. First, because trade liberalization can lead to both overall welfare improvements and a deterioration of environmental quality, a fundamental clash can arise between free-trade proponents and environmentalists. While the former can refer to the overall increase in welfare in justification for their calls for trade liberalization, the environmentalists are likely to refer to increased resource depletion and environmental degradation in justification for their concern about or opposition to trade liberalization. This clash is often not clearly recognized and it is not easily ameliorated. Perhaps Cole could have given more thought to this important point in what is otherwise a thoughtfully written and well-argued book. Second, the increase in environmental degradation could in principle overcompensate any other beneficial effect of trade liberalization. In other words, a situation in which environmental degradation increases so much that overall welfare decreases cannot be ruled out per se. It is largely an empirical matter and would call for a careful assessment of the environmental consequences of trade liberalization. Cole rightly points out that some of his estimates for the value of environmental damage following from trade liberalization might represent gross under-estimates. Maybe surprisingly, comprehensive assessments of the environmental consequences of past, ongoing, or future trade liberalization efforts are hardly existent so far. It is only now that, for example, the United States, Canada and the European Union have followed earlier suggestions by environmental non-governmental organizations and have committed to conduct comprehensive environmental (or broader sustainability) assessments of a new round of trade negotiations. Only after such assessments have been carried out can the necessary macro-economic and environmental management policies be undertaken to mitigate, if not avoid, the negative environmental effects. Cole’s book makes an important contribution to this endeavour. Its great strength is that it is accessible to non-economists as well as students. It contains only a minimum of formalism and economic jargon throughout. It is rare that economists write books