Pollution intensity of GDP and trade policy: Can the World Bank be wrong?

Abstract

What are the environmental implications of open trade policies in developing countries? Economic theory and environmental critics suggest they worsen environmental quality. This conventional wisdom has been challenged by several studies which suggest that outward-oriented trade policies are likely to be "win-win" (enhance economic growth and environmental quality). This paper challenges revised conventional wisdom (RCW) by demonstrating that developing countries with outward-oriented trade policies have higher pollution intensities of GDP than those following inward-oriented policies. The paper examines why the evidence reported here differs so sharply from RCW studies, considers the policy implications of these results, and identifies reasons why, despite them, it may not make sense to totally discount future potential win-win opportunities