THE INFLUENCE OF INTERNATIONAL TRADE ON THE ENVIRONMENT

Abstract

This paper builds an econometric model that attempts to explain the effect of global trade on the environment from data provided by the Global Trade Analysis Project (GTAP) at Purdue University. We estimated stable parameters for econometric models to forecast the impact of doubling carbon dioxide (2 × CO2) levels in the atmosphere. Robustness is checked against the Specific Factor Model in trade theory. The overall and zonal predictions for the lower and higher latitudes and the Northern and Southern Hemispheres are compared with the norms. The estimates of the model are also used as inputs into several computable general equilibrium (CGE) models to explore regional welfare impacts by climate change scenarios. The model's prediction comes within range of the norms and therefore, should be an important addition to the stock of pedagogic tools explaining the relationship between trade and the environment.