STUDY OF DOMINO EFFECT OF INTERNATIONAL TRADE, ECONOMIC GROWTH AND ENVIRONMENTAL QUALITY WITH REFERENCE TO INDIA

Abstract

One of the most debatable issues surrounding globalisation is the concern that trade hurts the environment, both locally and globally. Economists argue that expanding trade from domestic market to international market not only increases market share of each country but also rising competition among the nations and improve efficiency of utilising scarce resources because each country produces those goods in which she has comparative advantages. Openness to trade and investment can provide a country with the incentive to adopt, and improve access to new environmental technologies. But on the other hand, environmental economists have opposed global trade and argue that the costs of spreading trade to international markets are depleting natural resources and rising pollution emissions that ultimately deteriorates environmental quality. India accounted for 1.7% of the global trade in goods with the major export of Gems and Jewellery, Textiles, Rice, Leather, Electronic goods, Petroleum products etc. and major import of Petroleum oil and lubricants, Pearls, Precious stones, Organic chemical, Fertilizers etc. This paper investigates the multiple effect of trade liberalisation on the environment namely; scale effect, composition effect and trade effect by using simultaneous equation and Johanson-Juselius co-integration technique, run on different trade, economic and environmental variables. Further, the study results strongly evident that trade liberalisation have multiple effects on emission growth. First, improvement in the relative price of export to imports does appear to cause increased emission growth. Hence, the composition effect of trade liberalisation appear detrimental to environmental quality. This study also indicates that increased openness significantly raises the growth of income, which leads to a reduction in emissions growth. Second, the technique effect of income growth, generated by trade liberalisation, appears beneficial to the environment. In continuation, this study suggested that freer trade aggravates environmental damage via terms of trade, but mitigate it via income growth so implementation of Govt. Policy and timely follow up for the same must be done.