Is economic growth good for environmental quality? It seems that economic growth requires more natural resources and thus
gives rise to more environmental pollution. However, it is not necessarily the case that economic growth inflicts damage on the environment.
This issue has been discussed in previous research on the relationship between trade and environment (for a review of the
literature, see Beghin & Potier, 1997; Ferrantino, 1997).
In their seminal work, Grossman and Krueger (1991) suggest three effects of trade liberalization on environmental quality: i) the
scale effect refers to the simple intuition that economic growth demands for energy and thus increases harmful pollutants; ii) the
composition effect indicates that since trade liberalization allows developing countries to specialize in the sectors of comparative advantage
such as labor-intensive and pollution-producing industries, free trade would be hazardous to the environment in developing
countries; and iii) the technique effect implies that international trade can facilitate diffusion of clean technology and thus developing
countries can reduce pollution per unit of output.
Given that trade can generate an increase in income levels, the studies of the relationship between trade and environment provide
insight into the question of how economic growth affects the environment (for a literature review of the trade, growth, and environment
link, see Copeland & Taylor, 2004). The most famous theory about the relationship between economic growth and the
Is economic growth good for environmental quality? It seems that economic growth requires more natural resources and thusgives rise to more environmental pollution. However, it is not necessarily the case that economic growth inflicts damage on the environment.This issue has been discussed in previous research on the relationship between trade and environment (for a review of theliterature, see Beghin & Potier, 1997; Ferrantino, 1997).In their seminal work, Grossman and Krueger (1991) suggest three effects of trade liberalization on environmental quality: i) thescale effect refers to the simple intuition that economic growth demands for energy and thus increases harmful pollutants; ii) thecomposition effect indicates that since trade liberalization allows developing countries to specialize in the sectors of comparative advantagesuch as labor-intensive and pollution-producing industries, free trade would be hazardous to the environment in developingcountries; and iii) the technique effect implies that international trade can facilitate diffusion of clean technology and thus developingcountries can reduce pollution per unit of output.Given that trade can generate an increase in income levels, the studies of the relationship between trade and environment provideinsight into the question of how economic growth affects the environment (for a literature review of the trade, growth, and environmentlink, see Copeland & Taylor, 2004). The most famous theory about the relationship between economic growth and the
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