The Impact Of Trade On Ambient Air Quality: A Global Analysis

On one side,with the rapid growth of international trade significant transformation has been made in the world economy,on the other side about the impact of trade on the environment has become a major global concern for policy makers as well.With the pace of development,trade pattern has been changed.Moreover,global trade carry profound implications for all countries that yields environmental degradation.Indeed,Trade promotes the adoption of environmentally friendly production technology.The countries can attain advanced level efficiencies in their production processes along the higher level of trade openness by reducing greenhouse gas emission.However,trade is good or bad for environment is a dilemma.In this regard,there are two main streams of literature.One group of literature holds an opinion that trade causes to decrease environmental degradation through cost reduction and by efficient resource allocation.On the other hand,second group believes that trade leads to increase environmental degradation.So,there is no consensus about the impact of trade on environmental degradation.Therefore,this thesis in quest of exploring the trade impact on environment in term of carbon emissions in global stance.There are a lot of variables that can represent environmental pollution,however,the level of carbon emission is at the forefront of empirical studies.Carbon emission is the biggest reason of enviornmantal degradation.in accordance literature,this study adopts different measures for environment and trade.In order to investigate the trade–environment nexuses,this thesis adopts three measures of trade namely:(i)trade openness,(ii)value added trade and(iii)free trade agreement.For environmental this thesis adopts different carbon emission indicators such as CO₂ emission,airpollution indicators(carbon dioxide(CO₂),carbon monoxide(CO),nitrogen oxides(NOx),Sulphur oxides(SOx),nitrous oxide(NO₂),methane(CH₄),ammonia(NH₃)and non-methane volatile organic compounds(NMVOC)),and CO₂ emission embodied.This paper aims to explore the trade-environment relationship from the perspective of global value chain by using different theoretical models and empirical analysis methods,so as to expand the existing research field.The main content of this paper is composed of the following three parts.The first part is to explore the relationship between trade and ambient air on a global scale.The second part focuses on the impact of trade on environmental air quality from the perspective of global value chain.The third part is about the decomposition of carbon emission and its influencing factors from the perspective of value-added trade.This thesis mainly contributes in existing literalture in three ways:firstly,this study incorporate the average governance composite index(GI) composed by 06 dimensions of the institutions namely political stability and absence of terrorist violence,control of corruption,government effectiveness,regulatory quality,rule of law,and voice and accountability that are introduced by Kaufmann et al.(2010;2011).Second,we computed the value-added trade(VT)at each stage of the production by using a World Input-Output(WIOD)2013 classification database for 39 countries.Third,Calculation of embodied emissions/outsourcing emission by using Input-Output(IO) framework is the third contribution in the existing literature.This will sheds light on how a country bilaterally exports pollution to others under the global production trade.Because the production of each country is used to satisfy intermediate or final consumption.This thesis comprises on seven chapters which are organized as follows:In first chapter,we describe the background of the study.In further,we propose research questions according to the economic theory and existing literature.We use several statistically methods before regressing analysis such as,cross-sectional dependency test,panel unit root test,panel correlation matrix.For regression analysis,we applied GMM technique that is very useful,if study has endogenity issue.All these methods have been discussed in chapter one.Chapter two reviews the existing economic literature on trade and environment nexuses.Firstly,it reviews the literature on trade and environment relationship in different scenario.Then it shed light on the importance of Environmental Kuznets Curve(EKC)in trade and environment Nexuses.It is imperative to understand the concept of Environmental Kuznets Curve(EKC)hypothesis in trade and environment relationship.EKC explain theoretical relationship between growth and environment.Additionally,in the light of literature,different shapes of Environmental Kuznets Curve(EKC)also has been discussed.These related literature provide theoretical basis of our study.The third chapter is basically about the situation analysis of trade and environment relationship.How trade impact on environment.And what's situation is going on in sampled countries.To extract the empirical results this study applied some econometrics techniques.Chapter 4 is our first empirical chapter,in which the study addresses the“trade-enviornment/carbon emission and the role of institutions”for 117 countries from global standpoint and five regions:Sub Saharan,European,Middle E ast and North Africa,Asia and Pacific,and Latin America and Caribbean,using the panel data span 2002–2014.By considering the endogeneity problem,to validate the nature of trade environment nexuses,we applied the GMM first difference model in two steps.Likewise,Dumitrescu-Hurlin panel causality analysis is employed to affirm the causal relationship among the concern variables.The empirical findings of this chapter validate that the overall trade is significantly good to environment for sample countries(117)of the entire World,Europe,Asia,and Pacific regions.In further assessment,we incorporate interactive terms of institutions with trade,scale effect,and scale-technique effect.The average governance composite index(GOVI)is composed by 06 dimensions of the institutions namely political stability and absence of terrorist violence,control of corruption,government effectiveness,regulatory quality,rule of law,and voice and accountability that are introduced by Kaufmann et al.(2010;2011).The estimated results confirm that institution is the persistent instrument for resolving the environmental problems.Furthermore,we find the evidence of inverted u shape EKC in overall selected sample of the World,Sub-Saharan,Europe,Asia,and Pacific regions.In contrast,there is no confirmation of inverted u shape EKC hypothesis in Middle East and North Africa regions.Similarly,no strong evidence of inverted u-shaped EKC hypothesis is observed in Latin-America and Caribbean region.In Chapter five we explore“the trade–air pollution nexuses”by introducing the value-added trade(VT)concept from a global value chain standpoint.The value-added trade(VT)indicator is constructed by the World Input-Output(WIOD)classifications database.Owing to scanty data accessibility,the sample set is reduced to 39 countries covering the period from 1995 to 2009.Furthermore,we include the eight different pathways of per capita air pollution in terms of ammonia(NH₃),carbon monoxide(CO),carbon dioxide(CO₂),methane(CH₄),nitrogen oxides(NOx),nitrous oxide(NO₂),sulphur oxides(SOx)and non-methane volatile organic compounds(NMVOC)respectively.The valuable outcomes from empirical analysis have been found;Firstly,it explores that the preliminary stage of the development of value-added trade(VT)has a positive impact on air bonds pollution.However,in the later stage of the economic development,trade improves the environmental quality as the square of value-added trade(VT²)has a negative impact on air pollution.Moreover,it also elaborates that the magnitude impact of trade on carbon monoxide(CO)air pollution is more than the other seven air pollutants.Thirdly,the inverted U-shape in the trade–air pollution Environmental Kuznets Curve(EKC)hypothesis,the non-linear relationship between trade and pollution is also validated in all eight air pollutants indicators.In chapter six,we study focused on“emission embodied/outsource emission and free trade agreement”.In the meantime,Free trade agreements(FTAs)have a key role in the global value chain and also disturbing the environmental balance of the world.Therefore,the objective of this study is to check whether the trade is good or bad for the environments of countries that are bonded by trade agreements.To examine the impact Free trade agreements(FTAs)on embodied emissions,we applied the gravity framework.Further,to calculate the bilateral CO₂ emissions,we adopted the input–output analysis framework for the country to country sector.The multi-regional(countries)input–output analysis framework is based on the work of Leontief(1939).We find a positive impact of FTA agreements on bilateral CO₂ pollution.Under this empirical study found a positive impact of FTA agreements on emission embodied/outsourcing emission.However,in an income-based country group analysis,find mixed evidence regarding FTAs.The analysis concerning high income countries indicates that free trade agreements are beneficial for high income countries,while,in the case of upper middle income and lower middle income countries,find that the free trade agreements are not beneficial for their environments.These results imply that low income countries have a greater pollution effect even after the implementation of an FTA due to lenient environmental standards.In sum up,by using different measure of trade and environment,the study conclu ded that trade can be beneficial for the environment if it is accesses advance technology and accompanied with good institutions.Chapter 7 presents a brief discussion of the research background,including the rationale,aims,theoretical framework,used to achieve its aims.Additionally,it also described the policy implications.Such as,there is a dire need to adopt cleaner technologies,as the change in emission intensity will be decreased by gaining access to innovative technologies.Soundness effect of trade to environment depends on potential of institutional setting.Carbon tax polices can help to control carbon pollution.The thesis limitations and suggested directions for future research are also discussed in chapter 7.