Does trade liberalization create more pollution? Evidence from a panel regression analysis across the states of India

Abstract

Following the economic liberalization policies that have been adopted in India in 1993, the country has experienced phenomenal improvements in economic growth, industrialization, and trade flows. This paper has evaluated the environmental impacts of trade liberalization in India. The empirical strategy followed in this paper is that the impact of trade openness on environmental pollution has been decomposed into scale, technique, and trade-induced composition effects. Data on air pollution indicators such as sulfur dioxide (SO2), nitrogen oxide (NO2), and suspended particulate matter (SPM) and other socio-economic variables across the major industrial states of India over the time period 1991 2013 have been collated, and panel regression models have been applied for such impact estimation. The results establish that the impact of growth and trade liberalization on environmental pollution is not consistent across the pollutants rather it depends upon the specific indicator that is examined. For example, higher trade flows have helped reduce SO2 concentration; however, the same could not be said for NO2 and SPM. It is concluded that free trade policies in the presence of a dynamic pollution regulatory framework can yield sustainable trade. 2018, Society for Environmental Economics and Policy Studies and Springer Japan KK, part of Springer Nature.