Environmental Impact Of Trade Liberalisation In India Essay

Openness of the economic system, and the attendant trade liberalization, has provided the necessary drift to economic activity, in footings of enhanced industrialization, in the development states. However, there is no consensus, among the bookmans and policy shapers sing the linkages between trade liberalization, industrialization and environment. The argument, on the issue, has centered around two divergent groups – the first group considers trade as the booster of non lone economic growing but besides of the environmental betterment, whereas the 2nd group tends to deny the really thought of trade as an engine of economic growing. In the context of the argument, research probes, on the said linkages, have gained much significance in the recent times.

Theoretical literature on the linkage between trade, industrialization and environmental quality has brought about three distinguishable issues: ( a ) In add-on to labor productiveness and factor gifts, as the beginnings of comparative cost advantage, absence of environmental ordinance has emerged as a 3rd beginning of the said advantage ( Baumol and Oates, 1988 ). ( B ) The footing for North-South grouping of the states of the universe has changed from the nature of economic activity ( whether it is an agricultural or industrial state ) to the grade of stringency of environmental ordinance, ( Kadekodi, 2001 ). And, ( degree Celsius ) Environmental impact of trade is state specific and it can be decomposed into graduated table, composing and technique effects ( Antweiler et. Al. 2001 ). In a nutshell, it has been visualised that increased market entree, ensuing out of openness and industrialization, might take to three state of affairss, in isolation or together.

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They are: ( I ) an addition in income that enhances the concern and the capacity of a state towards better environment ; ( two ) an addition in the graduated table of the economic system, and, therefore, higher pollution strength of production, and ( three ) a alteration in the form and composing of end product, and trade, on the footing of comparative advantage enjoyed by the state. Consequently, trade is supposed to be act uponing environmental quality both positively and negatively. This capable becomes more of import, peculiarly, in instance of the development states, like that of India, where the economic reforms have taken topographic point perceptibly in the signifiers of: ( I ) remotion of quantitative limitations on trade, ( two ) proviso of more contributing footings for FDI, and ( three ) liberalization and increased denationalization of industrial activities.

Influence of Trade Flows on Environmental Quality

As per the literature, there are several channels through which the globalisation-induced free trade impacts are transmitted. These channels are: ( I ) graduated table of economic activity ( two ) income growing ( three ) alterations in the construction of economic activity ( four ) merchandise composing ( V ) engineering diffusion ( six ) trade-induced ordinance ( Panayotou, 2000 ). Each of the said channels is elaborated below:

The scale consequence: It negatively affects environment, as with increased trade, economic activity expands, demand for inputs goes up and environmental quality deteriorates. Since trade additions market entree of economic system, the scale consequence gets multiplied with trade liberalization.

The composing consequence: It brings about alterations in the form of economic activity, ingestion or technique of production. Trade may alter the composing of merchandises in an economic system, based on its comparative advantage, which, in bend, may act upon environmental quality positively or negatively depending upon the nature of specialization that the said state achieves after trade liberalization.

The technique consequence: It refers to the alterations in the production methods as a consequence of trade enlargement. The same may assist in bettering the environmental quality.

The income consequence: It is related to an addition in per capita income of a state ensuing from enlargement of trade. Demand for better environmental quality is income elastic and therefore lifting incomes lead to betterment in environmental quality.

The merchandise consequence: It is determined by how the remotion of trade barrier changes the merchandise composing of trade. This consequence will favorably act upon the environment, if increased trade leads to specialisation in environmentally good goods or transportation of greener engineering.

Regulative Consequence: Trade besides has positive regulative consequence on environmental quality through polish in the environmental policy, in response to economic growing ensuing from trade enlargement, or through irresistible impulses imposed by international trade and environmental understandings. But, if trade consequences in the relaxation of bing environmental ordinances, due to competitory forces, it will hold negative impacts on the environmental quality.

A criterion and widely accepted attack for analyzing the environmental impact of trade liberalization has been to sort the above said types of channels into three classs – graduated table consequence, composing consequence and technique consequence. The trade increases the market entree and graduated table of production of an economic system. Other things staying the same, as the graduated table of production additions, there is noticeable acceleration in environmental debasement. The composing consequence of trade steps the portion of soiled goods in the national income of a state. Technique consequence refers to the alterations in the production methods because of trade enlargement. Further points associating to the three effects are elaborated below:

Scale Consequence

If trade and investing liberalization cause an enlargement of economic activity, and if the nature of activity remains unchanged, so the entire sum of pollution generated additions. To the extent that the economic growing gives rise to an increased demand for energy, which so is generated by the agencies similar to the prevailing methods, there will be increased end product of harmful pollutants that attends an addition in end product ( Grossman and Krueger, 1995 ). The negative environmental effects of trade are more marked, where there are either market failures, in the signifier of unclear belongings rights, un-priced ecosystems, un-internalised outwardnesss and under-priced public goods, or policy failures, in the signifier of energy subsidies or forced industrialization.

Composition Consequence

The composing consequence measures the portion of soiled goods in the national income. Keeping the graduated table of production and technique invariable, an economic system that devotes more of its resources for the production of fouling goods has more environmental debasement. Different industries have different polluting strengths. Trade liberalization may alter the industrial construction of a state. A state tends to specialize in the production of that trade good in which it has more comparative advantage.

There are different beginnings of comparative advantage – differences in the labour productiveness, the differences in factor gifts and differences in environmental ordinances ( Copeland and Taylor, 1994 ). The impact of trade liberalization on the environmental quality will alter harmonizing to the beginnings of comparative advantage. For illustration, in instance of the comparative advantage ensuing from differences in the grade of stringency of environmental ordinance, the environmental impact of trade liberalization will be damaging to environment. Each state will be given to specialize in the activities, that are non purely regulated by its authorities, and will switch out of the production of those sectors where pollution suspension costs are relatively higher.

Technique Consequence

The technique consequence refers to the alterations in production methods as a consequence of trade enlargement. More end product may be possible with fewer resources due to efficiency additions. This may go on in many ways: ( I ) trade liberalization increases income of a state and, therefore, now, the state can afford to hold stricter environmental policies, ( two ) Opening of the economic system may assist reassign of engineering which is more environmental friendly, ( three ) The houses, now, can bask the economic systems of graduated table through the expanded markets. This helps the houses to put in more efficient and cleaner production techniques. By and large, the environmental friendly engineerings become economically feasible merely with large-scale production, ( four ) An entree to the foreign market forces the industries to provide to those goods demanded by the aliens, who attach greater importance to the environment features of the goods, and ( V ) The demand for better environmental quality is income elastic. Resultantly, lifting incomes of a state with more trade liberalization generate more environmental consciousness among the people. This generates more political force per unit areas for environmental protection ( Grossman and Krueger, 1991 ; Kukla, 2009 ).

In the nutshell, it may be stated that trade liberalization brings about greater market entree, increased income and improved criterion of life for the people of a state, and, therefore, more consciousness and capacity towards the betterment in the environmental quality of its production and ingestion. The above phenomenon, of course, helps in bettering the environmental quality of the economic system. But, at the same clip, enlargement brought approximately through trade liberalization, may besides increase the graduated table of economic activities, and, therefore, pollution intensity of the economic system. In other words, trade liberalization can hold direct and indirect ( positive and negative ) impacts on the environmental quality of a state.

Aim of present paper

The present paper aims to transport out a decomposition analysis of the environmental impact, of trade liberalization, on the Indian economic system in order to estimate the extent of the graduated table, composing and technique effects in comparative footings. The analysis is carried out based on the arrested development theoretical account proposed by Antweiler, Copeland and Taylor ( 2001 ) ( ACT, afterlife ). It uses the state-level panel informations on net domestic merchandise, capital to labor ratio, value of fabricating end product, per capita income, population denseness and besides exports and imports of fabrication merchandises.

Further, SO2 burden is used as the step of pollution. The period of analysis covers 1999-2000 and 2005-06. Two theoretical account specifications have been tested: ( I ) theoretical account affecting no trade strength variable, and ( two ) theoretical account affecting the trade strength variable. Subsequent subdivisions of this paper are schemed as follows. Section 4 inside informations the theoretical and empirical background of decomposition of environmental effects of trade liberalization. Section 5 provides the preparation of the theoretical account for the analysis. Section 6 discusses the estimated consequences. In subdivision 7 the findings of the analyses are outlined and the last subdivision concludes the treatment.

Theoretical Backdrops

As indicated above, the theoretical account is based on ACT. Antweiler, Copeland and Taylor ( 2001 ) have developed a theoretical theoretical account to break up environmental impact of trade into graduated table, composing and technique effects. The aim was to mensurate the effects, utilizing SO2 informations from the Global Environment Monitoring Project. Scale consequence was captured by the extent of economic activity, which was measured by the Gross Domestic Product ( GDP ) of a state, whereas the composing consequence was proxied by the capital to labor ratio. Technique consequence was considered to be reflected by the per capita income of the occupants of a state. Last, the trade strength variable was defined in the theoretical account as the ratio of exports plus imports divided by the GDP of a state.

The writers found grounds for a positive composing consequence originating from an addition in the K/L ratio. Consequently, 1 % addition in state ‘s K/L ratio had led to about 1 % addition in pollution. A strong and negative relationship, between per capita income degree and pollution, besides had been predicted through the consequences. Further, every bit far as the trade induced composing consequence was concerned, overall snap of concentration to an addition in trade strength ranged between -0.4 to -0.9 bespeaking a negative trade-induced composing consequence. The decision of the survey, overall, was that the positive graduated table consequence on environmental debasement would be offset by the negative technique consequence and, therefore, trade liberalization need non be non- conducive for environment.

The basic statements, put away through the theoretical account, are outlined below, in order to fix the model of the decomposition analysis.

Trade increases the market entree and graduated table of production of an economic system. Other things staying the same, as the graduated table of production additions, environmental debasement besides increases.

The composing consequence of trade steps the portion of dirty goods, in the national income, of a state. Keeping the graduated table of production and technique invariable, an economic system that devotes more of its resources, for the production of fouling goods, has the likeliness of more environmental debasement. Industries tend to differ in footings of the grade of pollution strengths among them. Based on the pollution intensity, trade liberalization may alter the industrial construction of a state.

Technique consequence refers to the alterations, in the production methods, as a consequence of trade enlargement. Trade liberalization may do more end product possible with fewer resources due to the efficiency additions.

Different Approaches and Basic Evidence

The empirical surveies, which have examined the environmental impact of trade liberalization, are based on the impression that trade enlargement affects environment both straight and indirectly. Trade may better the environmental quality in some respects. In some other regard, it may deteriorate, every bit good, the said quality. The net consequence depends upon which of the two effects is stronger. Further, There are alternate techniques used by different surveies: ( I ) Some of the surveies have investigated the function of trade by adding a step of openness as an extra regressor to measure impact of economic growing on environment, in general, and the impact of trade in the context of graduated table, composing and technique effects in peculiar ( Grossman and Krueger 1995, Dean 2002 ) ; ( two ) Some surveies have examined the nexus between cost of pollution suspension and trade flows and have found out either, merely, less or no support to the statement that environmental tightness has an consequence on the trade flows ( Tobey, 1990 ) ; and ( three ) Still, other surveies have tried to look into how the pollution strength of exports or production has changed over clip ( Low and Yeats, 1992 ).

In drumhead, utilizing different methodological analysiss, the surveies attempt to place links between assorted policy options related to merchandise openness and environmental concerns, across the states, which differ in the degree of development ( in footings of income ) and trade openness.

5. Puting for Empirical Trial

5.1 The Underlying Hypothesiss

An influence of increased openness on the pollution degrees of the state, may be summarised as follows, which is the implicit in hypotheses of ACT theoretical account model.

Impact of openness on environment quality varies with the comparative advantage of a state,

As a consequence of more openness, state ‘s economic activity additions which leads to increased degree of pollution through graduated table effects,

Openness will besides ensue in addition in income per capita making technique consequence,

As per the widely accepted factor gift theory, capital abundant state should bring forth and export capital intensive trade good. It implies that if a state is sufficiently capital abundant, the pollution haven motor ( originating out of rigorous environmental policy ) will be weaker and the state will bring forth and export pollution intensive good. In other words, the capital copiousness consequence will invalidate the pollution oasis consequence, and

Harmonizing to the polish, in the theory, in the recent periods, hapless states tend to hold the comparative advantage in the production and export of soiled goods due to lax environmental policy. Alternately, rich states tend to specialize in clean industries. Consequently, if a state is non sufficiently rich, so the pollution haven motor for trade may be more resorted to than the factor endowment motivation.

5.2 Determinants of Pollution Intensiveness

In this subdivision, the inside informations of the theoretical account, under horizon, are presented. The theoretical account, fundamentally, allows the comparative advantage to be driven both by the capital and labour gifts and by the differences in environmental ordinances. The environmental ordinances are endogenously determined within the theoretical account by the income derived functions.

The attack, at the first measure, involves,

Z = s + degree Celsiuss + T.. ( 1 )

Where,

Omega is the per centum alteration in the pollution emanations of a state,

s is the scale consequence or a alteration in the size of economic system,

degree Celsius is the composing consequence or a alteration in the portion of pollution intensive production in the entire end product, and

T is the technique consequence or alteration in the pollution strength of dirty industries or alteration in the technique of production in response to the increased incomes or increased strength of pollution suspension.

Decomposition of equation 1, permits the theoretical account to exhibit the demand for and supply of pollution. The demand for pollution positively depends upon the graduated table, capital copiousness and the universe monetary value of soiled goods and is a negative map of pollution revenue enhancement. The grade of trade clashs besides affects pollution demand but the way of the relationship depends upon whether a state is an importer or an exporter of soiled goods. The supply of pollution depends upon the cost of pollution which, in bend, is determined by the pollution revenue enhancement. The pollution revenue enhancement is determined by the degree of per capita income. Increased per capita income implies an increased demand for environmental quality.

As farther measure, by incorporating demand for and provide dimensions of pollution, the undermentioned equation is obtained.

Z = ?1 sij + ?2 kij – ?3 Iij – ?4 Nij – ?5 Tij + ?ij.. ( 2 )

Where,

s denotes the scale consequence,

K measures the impact of capital to labor ratio on pollution. This denotes the composing consequence,

I represents the degree of per capita income ( PCI ),

N denotes figure of people exposed to pollution and

T represents trade clashs – anything that acts as a barrier to trade.

I denotes country/region/state

J stands for clip

5.3 Estimated Models Under Two Specifications

In this subdivision, the preparation of the theoretical account is taken up, following equation ( 8.2 ) outlined above. Consequently, SO2 pollution tonss, for the Indian provinces for the period 1999 to 2005, are hypothesised to be determined by the variables of ( one ) net province domestic merchandise, ( two ) per capita income, ( three ) capital strength and ( four ) population denseness. Two specifications of the theoretical account are considered i.e., ( I ) without trade strength variable and ( two ) with trade strength variable. The two specifications have been formulated based on:

The graduated table, technique and composing effects are at work even in the closed economic system. Specification I decomposes these effects without adding the openness as a regressor.

With the trade liberalization, the marks and significance of the said effects are expected to alter. Hence, Specification II estimates graduated table, composing and technique effects by taking trade strength as an extra regressor.

The net consequence of trade liberalization on environmental quality will depend upon the comparative strength of the said effects.

The specifications are:

Specification I: ( Without Trade Intensity )

SO2 emanations ij = ?0 + ?1 SNDP ij + ?2 PCI ij + ?3PCISQ ij + ?4 INTK ij

+ ?5 INTKSQ ij + ?6 POPDN ij + ? ij.. ( 3 )

Where, SNDP is net province domestic merchandise, PCI is per capital income, PCISQ is a square term of PCI, INTK is capital strength, INTKSQ is a square term of capital strength and POPDEN is population denseness, i bases for provinces, J bases for twelvemonth and ? ij are fixed effects.

Specification II ( With Trade Intensity )

SO2 emanations ij = ?0 + ?1 SNDP ij + ?2 PCI ij + ?3PCISQ ij + ?4 INTK ij

+ ?5 INTKSQij + ?6 TIij + ?7 TI*RPCIij + ?8 TI*RPCISQij

+ ?9 TI*RINTKij + ? 10 TI*RINTKSQij

+ ?12 POPDNij + ? ij.. ( 4 )

The trade strength ( TI ) variable is added both in absolute and synergistic signifiers. The interaction of the same is considered alongwith ( I ) States ‘ comparative per capita income, ( two ) Square of provinces ‘ comparative per capita income, ( three ) States ‘ comparative capital strength and ( four ) square of provinces ‘ comparative capital strength.

5.4 Variable Description and Nature of Relationship

The analysis is based on panel informations fixed consequence arrested development model. As cited, above, 22 states/Union Districts of India ( States were selected on the footing of informations handiness related to variables refering to the survey ) are the cross subdivisions, the annual clip series being of the period 1999 and 2005. The variable along with their notations and expected mark for several coefficients are given in Chart 1.

Dependent variable

The step for the dependant variable is the burden of sulfur dioxide for each province. It is obtained by the exercising i.e., the SO2 strengths ( that are sourced through the Industrial Pollution Projection System ( IPPS ) ) are multiplied by the one-year province degree end product of the fabrication sector ( an all industries average SO2 strength of all 3-digit fabrication industries is taken ). As already mentioned, no comprehensive sector wise pollution informations on fabrication activities exists in the development states.

In such a instance, the sector specific emanation strengths estimated from Industrial Pollution Projection System ( IPPS ) developed by the World Bank can be used as a placeholder for the comparative emanation strengths for the corresponding sectors in the development states. In fact, the emanation strengths in the underdeveloped states must be much higher than the IPPS computations due to less environmental control and low degrees of technological development in these states. This justifies the usage of IPPS emanation strength informations is used in this survey. Many surveies have used this attack of roll uping informations for mensurating the dependant variable under consideration. A few of the surveies, in the said regard, are: Cole ( 2000 ), Gamper -Rabindran ( 2001 ), Pandey ( 2005 ), Gupta ( 2002 ).

Independent variables

The independent variables involved under the two specifications are:

State net domestic merchandise ( SNDP ) reflects the graduated table of economic activity of a part. As per the theory, increased graduated table of economic activity tends to increase the environmental pollution.

Capital Intensity ( INTK ) is used as a step of composing consequence which is computed as a ratio of fixed capital outgo to rewards.

Income per capita ( PCI ) and its square term ( PCISQ ) are used to capture technique consequence. At lower degrees of income, an addition in PCI leads to increase in environmental debasement. But, at higher degrees of income, an addition in PCI is expected to increase in demand for environmental quality ( as per the Environmental Kuznet Curve Propositions ) and, therefore, the pollution policy becomes stricter. A non-linearity of the relationship between per capita income and SO2 tonss at a higher degree of income is captured by the square term.

Population denseness ( POPDN ) appears, in the arrested development theoretical account, as a placeholder for the figure of individuals exposed to a given unit of pollution. Average figure of persons exposed to pollution, theoretically, has a negative relationship with the pollution. Increase in the figure of people exposed to pollution leads to stricter pollution policy ( Samuelson Rule ). Since uninterrupted annually informations on this variable is non available, by appropriate extrapolation based on 1991 and 2001, the necessary information has been arrived at. In this regard, the decadal growing rate ( 1991 to 2001 ) of denseness of populations is made usage of.

Trade Intensity ( TI ) is the ratio of one-year exports plus imports to the gross domestic merchandise. It is adopted in the theoretical account to capture trade-induced effects on the economic system. It is adjusted to reflect the regional feature with respects to the importance of industrial activity in the several provinces. The existent consequence is country-specific and depends chiefly on the comparative advantage of the state. Based on this theoretical premiss, to a big extent, province trade strength is replicated in the present analysis. It is obtained from the state ‘s step of trade strength by seting for the comparative place of the given province in footings of industrial end product.

Relative Per Capita Income ( RPCI ) and Capital to Labour Ratio ( RINTK ) – To mensurate the impact of the determiners of comparative advantage in trade, two interaction footings are introduced in the theoretical account – ( I ) relative per capita income ( RPCI ) reflecting the pollution haven motor and the grade of stringency of environmental ordinance ( all India mean = 1.00 ) and ( two ) comparative capital to labor ratio ( RINTK ), reflecting the factor endowment motivation ( all India mean = 1.00 ). Jena and Grote ( 2008 ) have considered similar attack in their survey on India.

An synergistic term between the comparative per capita income and trade strength ( TI*RPCI ) is expected to hold a positive relationship with pollution tonss at the lower degrees of income and negative relationship at higher degrees of income. This is because the environmental ordinance becomes stricter with addition in per capita income of a state and, therefore, at higher degrees of income, environmental quality improves.

An interaction term between comparative capital to labor ratio and trade strength ( TI*RINTK ) is expected to hold a negative mark at lower degrees. This is because a state with low capital labor ratio will go cleansing agent after trade liberalization as it will hold comparative advantage in the production of labour intensive trade goods. At higher capital to labor ratio, a state tends to specialize in the capital intensive production which will do the state dirtier and, therefore, the quadratic term of this synergistic term will come in with positive mark.

Chart 1: Notations and Description of Variables Used in the two specifications

Sr. No

Notation

Variable

Expected mark

1

SO2LOAD

SO2 pollution burden

Dependent variable

2

SNDP

State Net Domestic Income

+

3

PCI

Per Capita Income

+

4

PCISQ

Square of Per capita income

5

INTK

Capital Intensity

+

6

INTKSQ

Square of capital strength

7

Titanium

Trade Intensity

?

8

TI*RPCI

Interaction Term between comparative capital strength and trade strength

?

9

TI*RPCISQ

Interaction Term between comparative capital strength and trade strength

?

10

TI*RINTK

Interaction Term between comparative capital strength and trade strength

?

11

TI*RINTKSQ

Square of interaction term between comparative capital strength and trade strength

?

12

POPDN

Density of Population

5.5 Beginning of Data, Software Used and Reported Consequences

Datas for the reported period of analysis are sourced as follows: ( I ) Industry-level information is taken from the Annual Survey of Industries and ( two ) The State-level, national income and per capita income related informations and national export- import informations are taken from the Economic Survey of India. Where-ever applicable, variables are deflated to 1987-88 monetary value degree. Appraisal is carried out utilizing StataSE8

Drumhead Statisticss

The drumhead statistics refering to the variables under survey are given in Chart 1. The information is consistent with the definitions. There are besides groundss of considerable fluctuations in all the variables.

Chart 2: Drumhead Statisticss for Variables Used in the Analysis

Variable

Dimension

Mean

Std Deviation

Co-efficient of fluctuation ( % )

Minimum

Maximum

State net domestic merchandise

Rs.Lakh chromium.

0.29

0.24

82.76

0.01

1.14

Capital to labor ratio

Rs. hundred thousand

15.90

7.82

49.18

5.50

46.6

Per capita income

Thousand Sri lanka rupees

8.60

4.76

55.35

2.22

25.63

Relative per capita income

All India mean = 1.00

1.28

0.70

54.69

0.30

3.34

Relative capital strength

All India mean = 1.00

1.06

0.52

49.06

0.35

3.0

Population denseness

People/km2

1254.72

2491.824

198.60

79.00

10822

SO2 Pollution Load

Lakh Kg

410.51

495.98

120.82

0.60

2576.81

6. Discussion of Estimated Consequences

Specification I: Model without trade strength ( Table 1 )

Table 1: Determinants of Pollution Intensity for Specification I

SO2 Loads as dependant

variable

Fixed Effectss

SNDP

3620.083 ( 21.85 ) *

PCI

-23.030 ( -1.89 ) **

PCIsq

1.0287 ( 2.07 ) **

INTK

-3.0544 ( -0.61 )

INTKsq

0.0115 ( 0.63 )

POPDEN

-0.1469 ( -3.82 ) *

_CONS

-302.8419 ( -3.21 ) *

R-Squared

0.8071

No. of Observations

154

Bracketed figures are t-values of the coefficients.

* indicates significance at 1 % degree and ** indicates significance at 5 % degree

Observations

The cardinal variables stand foring graduated table, composing and technique effects are province flat net domestic merchandise, capital strength and per capita income severally. Following observations can be made from the consequences:

On the whole, tantrum of the theoretical account is good ( as indicated by the R2 value which stands to be 0.81 )

State domestic merchandise and population denseness are important at 1 % degree and per capita income and its square term are important at 5 % degree.

Discussion

A positive and extremely important relationship between province domestic merchandise and pollution tonss indicates that addition in the graduated table of economic activity is accompanied by increased pollution degrees. The dairy merchandises, drinks, merchandises of wood, cork and straw, paper, coke oven merchandises, plastics, non-metallic mineral merchandises, basic cherished and non-ferrous metals and casting of metals are the illustrations of the industries holding really less portion in Indian exports but are progressively responsible for bring forthing pollution tonss. This determination suggests that the domestic demand for the polluting goods has risen over the old ages.

Per capita income and its square term do non demo the mark in conformance with the theory. The variable reflecting the regional features – population density- has negative ( as expected ) and important relationship with the dependant variable. This is in conformance with the theory ( Samuelson Rule ) that higher the figure of people exposed to pollution, it is more likely that the environmental policy is implemented purely.

Specification II: Model with Trade Intensity ( Table 2 )

Table 2: Determinants of Pollution Intensity for Specification II

Variable

Fixed effects

SNDP

3566.562 ( 19.80 ) *

PCI

-35.5876 ( -1.96 ) **

PCISQ

1.6181 ( 1.77 ) **

INTK

-13.2606 ( -1.82 ) **

INTKSQ

0.2510 ( 1.50 )

Titanium

-813.2743 ( -3.42 ) *

TI*RPCI

622.5918 ( 2.41 ) *

TI*RPCISQ

-166.4196 ( -1.73 ) **

TI*RINTK

589.8966 ( 2.57 ) *

TI*RINTKSQ

-177.623 ( -2.18 ) **

POPDEN

-0.1472 ( -3.63 ) *

_cons

-145.8908 ( -1.17 )

r_squared

0.8270

Observations

154

Bracketed figures are t-values of the coefficients.

* indicates significance at 1 % degree and ** indicates significance at 5 % degree

Observations

In footings of addition in R2, trade strength variable has non shown any noticeable part.

Coefficient attached to capital strength has become important but the associated mark is negative.

State domestic merchandise, trade strength, population denseness and two footings interacting with trade strength – comparative per capita income and comparative capital strength – are important at 1 % degree.

Discussion

Consequences, here, like in ACT ( 2001 ) and Grossman and Krueger ( 1993 ), indicate negative and statistically important relationship between trade strength and pollution tonss. It implies that an increased openness is accompanied by decreased pollution. However, the said impact is non demoing considerable alteration in graduated table, technique and composing effects. It may besides connote that openness in trade may be responsible in taking market imperfectnesss and do India bring forth harmonizing to its comparative advantage.

Though the per capita income entirely does non demo the mark, in melody with theory, the additive interaction term on openness and per capita income is positive and the quadratic term is negative. This implies that if a part has a comparatively low income per capita in relation to India, so the impact of farther openness may do that part dirtier. Relatively richer parts will exhibit opposite inclination.

An interaction term between trade strength and capital to labor ratio is positive and important. This consequence is in contrast with the ACT theoretical account. However, the positive consequence for India indicates that, other things staying equal, if pollution degrees are determined merely by capital labor ratio, trade openness tends to increase the pollution degrees in different provinces. India traditionally is known as labour abundant state. The consequences of the theoretical account, nevertheless, suggest that India is bring forthing more capital intensive goods which are more pollution intensifier in nature. This observation is of import in the context of its comparative labor copiousness.

7. Findingss from Decomposition of Effectss

Scale consequence has been apparent which was considered to be in response to increasing domestic demand for fouling goods. At the same clip, co-existence of technique consequence is reflected. This is, nevertheless, in the absence of trade strength variable.

On the other manus, trade strength, as a variable, has tended to cut down pollution tonss.

There is grounds that lower income parts tend to go dirtier in the procedure of industrialization as a consequence of trade strength.

Trade strength ‘s interaction with capital strength, in topographic point of labour strength, is more apparent. Therefore, trade strength has, obviously, influenced composing consequence.

8. Decision

The consequences have, to a noteworthy extent, traced the graduated table, technique and composing effects of trade liberalization on the environment. Trade strength has well worked for the being of composing consequence. Emergence of technique consequence, which is a consequence of increased force per unit area for implementing and staying of the environmental Torahs, likely, strengthens the transeunt nature of pollution haven hypothesis under Indian conditions ( Mani and Wheeler, 1997 ). As the findings have indicated, India, being a labor abundant state, must bring forth and export the labour intensive merchandises. More trade openness may take India to specialize in the production of those trade goods in which it has comparative advantage originating out of its factor gifts.

Besides, more conjunct attending may be given to environment related trade policies. The authorities can play more proactive function in popularizing the environmental policy, so that the additions of trade openness favorably balance with that of the negative environmental impact. Finally, since the environmental jobs frequently cross the political boundaries, there is a turning demand for effectual international co-operation in order to measure and convey down the negative impact of trade liberalization on the environmental quality. India can take particular and more conjunct attempts in this way.