Trade and Environment Nexus

One major concern that has emerged in the post-globalization period is climate change. Given that pollution and environmental degradation is a public bad, the adverse change in the climate of one region will have ubiquitous effect and therefore will hamper the process of sustainable development across the globe. There are substantial links between international trade and environmental issues – one being that of the perverted comparative advantage which evolves mainly out of the neglect of environmental damage caused by productive activities. In this chapter, an attempt has been made to build a theoretical framework related to intra-industry trade with production differentiation based on the environmental quality of the goods and price to address how liberalization of trade happens to affect the environment of the trading nations. The study shows a steep decline in the environmental quality of the good that was relatively cleaner under autarky while a meagre improvement in the environmental quality of the relatively dirtier good. Hence, it is revealed hereby how trade alters the nature of international inequality in the environmental quality of the productive activities.