TRADE LIBERALISATION AND THE ENVIRONMENT:

THE CASE OF THE URUGUAY ROUND

By M.A.Cole*, A.J.Rayner** and J.M.Bates**

Abstract:

This paper estimates the impact of the Uruguay Round of trade negotiations in terms of four local air pollutants and carbon dioxide. The monetary cost associated with this impact is also estimated. Estimation is made in terms of three mechanisms associated with trade liberalisation: the composition effect, the scale effect and the technique effect. Sectoral pollution intensities from Hettige et al. (1994), modified to allow for differences between regions, together with the results of François et al. (1995) are used to estimate the composition effect. Estimated environmental Kuznets curves provide the source for calculating scale and technique effects. Results indicate that most developing and transition regions will experience an increase in emissions of all five pollutants. For the developed regions three local air pollutants are predicted to decrease, whilst the other pollutants increase. The analysis also indicates that the environmental impact will typically be considerably greater if the Uruguay Round affects the rate of economic growth. Monetary damage estimates are as large as 1.2% of a region’s estimated gains from the Uruguay Round.

* Department of Economics, University of Birmingham

** Department of Economics, University of Nottingham

Keywords: Trade liberalisation; economic growth; industrial composition; air pollution