The document discusses several negative externalities related to international trade and their effects on the environment, including increased production and consumption, transportation of goods, and health consequences of pollution. Data is presented comparing carbon dioxide emissions, U.S. trade levels, and emissions released by U.S. manufacturing facilities in different regions from 1990-2007. While a positive correlation between trade levels and emissions cannot be definitively concluded, regions with higher exports tended to have higher emissions. The document hypothesizes that increased trade leads to more production, transportation, and overall pollution and environmental damage.

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March 9, 2011
I. Introduction
Trade has benefited the growth of our economy for several years, but there is much
discussion about the consequences of trade. Some of these consequences include negative
externalities, such as the direct relationship between the production and consumption of goods,
gas emissions and harmful chemicals from transporting goods, and the detrimental health effects
to all organisms. Externalities can be positive or negative; if a purchase of a good or a decision
affects others who were not taken into account, then this is an externality. An example of a
positive externality would be a person purchasing a water filter for her office. Others benefit by
using the water filter as a public good. An example of a negative externality is a person smoking
in front of others who do not smoke and they receive second-hand smoking. Here are graphs to
demonstrate positive and negative external effects.

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The graphs above show that there are two equilibiums: ideal and actual. In the positive
externality graph, the ideal equilibium is the intersection of the supply function and the social
benefit function. The shift from private to social benefit is the compensation for the losses of
benefits from only focusing on private benefits. The actual equilibium is the intersection of the
supply and private benefit functions. This equilibruim is more realistic in terms of people caring
about their own needs, and not considering the benefits of others around them. In the negative
externality graph, the ideal equilibium is the intersection of the demand function and the social
cost function. The shift from private to social cost is the compensation for the losses of costs
from only focusing on private costs. The actual equilibium is the intersection of the demand and
private cost functions, which is more realistic in terms people caring about their own needs, and
not considering the negative outcomes that others will have to tolerate. Many economists have
tried to reach the ideal equilibium by putting regulations to compensate for the losses from both
externalities. Pollution, a negative externality that is discussed in this paper, has also been

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regulated, yet it is inconclusive to decide if the increase in international trade is increasing
pollution levels.
While international trade is increasing, it raises the question: Is international trade
beneficial for the economy and the environment? My hypothesis is that trade and pollution have
a positive relationship—the more trade there is, the more pollution emits to the atmosphere,
leading to more health risks. This prediction ramifies from the pollution-haven hypothesis, which
is one of the most debated topics in international trade and concerns of the environment. The
pollution-haven hypothesis states that because developed countries have higher, stringent
regulations compared to developing countries, this will lead to relocations of factories in
developing countries where regulations are more flexible and thus, lead to cheaper production
costs. However, relocating does not solve the issue of pollution increasing; pollution is only
being moved from one place to another. Overall, these issues are due to firms primarily focusing
on maximizing profits, also known as the market equilibrium. We have not taken into account
the negative externalities that need to be compensated. Many have not realized that the more
production without regulation, the more pollution and wastes we create. When externalities are
neglected, firms are overcompensated—firms do not realize that optimization is only efficient
economically in the short run, but not environmentally in the long run.
Using the U.S. EPA’s RSEI model (Risk Screening Environmental Indicators), data from
U.S. Census Bureau on world trade, and World Bank data on carbon dioxide gas emissions from
manufacturing facilities, I will show time series data, analyzing the correlations over time, gas
emissions due to trade, and tables and graphs showing the relationship between production and
emissions. These are some of the methodologies that will be used to answer my question and

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support my hypothesis. I will experiment my hypothesis to see if there is an increase in pollution
levels due to an increase in international trade.
II. Literature Review
“Trade, Growth, and the Environment,” written by scholars Brian R. Copeland and M.
Scott Taylor, lays out the pollution-haven hypothesis, which states that due to strict
environmental policies, firms will relocate to another country where pollution is more tolerable.
This way, firms will not be restricted from producing however many of their goods. Based on
the income effect, if there is an increase in trade and environmental policies, then income will
decrease. This occurs when firms are producing fewer goods but the demands are high. As a
result, many firms lose profits due to stringent regulations, and eventually relocate to an area
where there are more flexible regulations. “Trade may encourage a relocation of polluting
industries from countries with strict environmental policy to those with less stringent policy”
(Copeland & Taylor, 2004). However, this does not solve the issue of pollution, because now it
is not only domestic pollution that we are concerned about—now our concerns incorporate
global pollution. In conclusion, pollution has not been regulated. Instead, it has only been
relocated, and the regulations have been ineffective. However, this is only a speculation that we
perceive if we assume that all firms relocate. In reality, not all firms have the luxury to relocate
to another country, and particular essential resources to produce their goods might not even be in
other countries. Overall, industries cannot relocate to other countries very easily. Therefore, I am
not claiming that trade and environmental regulations are completely useless. In fact, because of
how unrealistic the pollution-haven hypothesis is, trade and environmental policies still do play
essential roles in regulating pollution.

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In addition, another literary review by scholars Jaime de Melo, Jean-Marie Grether, and
Nicole A. Mathys also discuss in “Trade, Pollution, and the Environment: New International
Evidence” the pollution-haven effect. Their main research was to see if transportation costs are
expensive enough to prevent the pollution haven effect from occurring. As a result, their
evidence seems to disprove the pollution haven effect. In reference to the bar graph that they
have concocted, it shows that the between-country effect is negative (Grether et al., 2009). This
article also motivated me to look for other externalities on trade, such as the production and
consumption pollution and wastes, and health effects—the aftermath—of pollution. These are
some of the topics that have been ramified to support my hypothesis of trade and pollution
having a positive correlation.
III. Negative Externalities to be Investigated
I will examine the following negative externalities that correspond to international trade
and the effects of the environment: the effects of increased production, the aftermath of increased
consumption, excretion of pollution from transporting goods, and the health consequences due to
pollution. These topics will be individually examined to give us a more explicit picture of what is
happening to the environment based on increased trade levels.
IIIA. Effects of the Environment from Production and Consumption
In order for trade to occur, more goods need to be produced. This can easily be shown by
the Ricardian model. Briefly, the Ricardian model shows us that in order for countries to trade,
every country needs to specialize in what they are most efficient in producing, which is also
known as comparative advantage. In consequence, this drives countries to produce more than the
equilibrium quantity so that not only do they have to support their country, but also to produce

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enough to export to other countries. Thus, increase in trade implies that there will also be an
increase in production and consumption. The production of goods also contributes to polluting
the environment. People have believed that trade is economically efficient and helps economic
growth. This implies that if the economy is continuously growing, then there needs to be more
production since not only do we have to produce enough to support the domestic population, but
also for the international population. Therefore, there will be more people consuming goods.
Nevertheless, where do these production and consumption wastes go? Some are shipped and
dumped to other countries that have less environmental quality, some are dumped into the sea,
and some are dumped in other landfills. In addition, some are exposed in the air and cannot be
‘dumped’ anywhere (Kummer, 1994). “Faced with the problem of disposal, more and more
holders of hazardous wastes have, in recent years, chosen to export them from the country of
generation, either for further treatment or final disposal in another country, or for dumping
incineration at sea” (Kummer, 1994, p. 6).
The graph below shows the World Bank’s data on the relationship between time
(measured in years) and the levels of gas emissions, specifically CO2, from burning fossil fuels
and the manufacture of cement (measured in metric tons per capita), also produced from
consumption of solid, liquid, and gas fuels and gas flaring. In addition, I have included the World
Bank U.S. trade data (measured in % GDP). Years 1990 to 2007 have been selected and
observed for both data, since trade was still fairly new in the early 90s and 2007 is the most
recent data that World Bank obtains for both topics. The trend lines are added to show the
correlation between the years and the levels of CO2 emission and trade. We can clearly see that
trade has been increasing by observing the % GDP trend line. Although the trend line is slightly
positive for the CO2 emission levels, the data points seem inconsistent, thus some points have not

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contributed to formulating the trend line. Therefore, the increase in CO2 emission levels cannot
be safely concluded.
Although we were not able to conclude the results of the CO2 emission levels increasing,
using the Risk Screening Environmental Indicators (RSEI) model has helped on developing a
clearer picture of the relationship between trade and levels of emissions. Below, we can look at
the relationship between the monetary value of exports and pounds released by different regions
of the U.S. both in the year 2007. 2007 was chosen to be analyzed since this was the most recent
data that I was able to find in the RSEI model, and in correspondence, I used the 2007 U.S.
Bureau value of exports. There are ten U.S. EPA regions, and all of them have been included
into this graph. The image below the graph is a map of all the U.S. EPA regions
(http://www.epa.gov/acidrain/where/). This will help us interpret the graph below.
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CO2Emissions(metrictonspercapita)
%GDP
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Time Series Data: % GDP and CO2 Emissions
in the U.S.
% GDP CO2 Emissions Linear (% GDP) Linear (CO2 Emissions)

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I have concocted a method to make our “Exports vs. Released Emissions from
Manufacturing Facilities by U.S. EPA Regions in 2007” regional analysis more brief and concise:
I divided the graph into three different sectors, and created a category for each of these sectors. I
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Monetary value of Total Exports (by millions of dollars)
Exports vs. Released Emissions from
Manufacturing Facilities
by U.S. EPA Regions in 2007

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will call the regions along the x-axis low-concentrated exporting regions, the middle section
fairly-concentrated exporting regions, and the section farthest from the x-axis the highly-
concentrated exporting regions.
According to the graph above, 1, 3, 7, 8, and 10, have the lowest concentrations of
exportation, which also correlates with the released levels of emissions. From my speculation,
region 7 has a low value of exports because based on the inconvenience of their location, they
seem to have the most difficult time exporting goods. They are not on the edges of the U.S., and
Nebraska, Iowa, Kansas, and Missouri do not have congested populations.
Although Regions 2 and 9 are also fairly concentrated in exportation, surprisingly, their
manufacturing facilities release low levels of emissions. My conjecture of this analysis is that
since Region 2 includes New York, a state that is densely populated, many manufacturing
facilities are not built here. The same conjecture goes for Region 9—it includes California; not
only is this state densely populated, but it also has many major cities. Thus, many manufacturing
facilities may not be built here.
The remaining regions, regions 4, 5, and 6, have high concentrations of exportation. Here
are some of my conjectures of why these regions have the highest exports: Region 4 is closest to
some of the Caribbean islands, such as Cuba, Jamaica, The Bahamas, Haiti, Dominican Republic,
and many more. They are most likely to trade with many of the Caribbean islands compared to
the other U.S. states. Region 5 is closest to middle Canada, which makes them to export goods to
Canada most easily compared to other regions. In addition, Michigan is a big shipping zone.
Since Region 6 is closest to Mexico in comparison to other regions, this region can export goods
to Mexico most easily. Overall, the U.S. is able to trade easily with Canada and Mexico, ever

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since NAFTA has been established. Analyzing the 2007 graph, we can see that there is a positive
correlation between exports and released emissions.
Although I will not closely examine all ten regions individually, I have selected to choose
a region from each sector to compare their emission and export levels, particularly, 2, 6, and 7.
Region 2 consists of New York, New Jersey, Puerto Rico, and Virgin Islands, Region 6 consists
of New Mexico, Texas, Oklahoma, Arkansas, and Louisiana, and Region 7 consists of Nebraska,
Iowa, Kansas, and Missouri. I have chosen to analyze these particular regions for the following
reasons: Region 2 includes New York, which is one of the most active east coast states in
production and trade, and since Puerto Rico and Virgin Islands are both islands, I assumed that
they trade from various countries and do not produce all goods domestically. Region 6,
especially Texas, is one of the regions closest to Mexico. After finalizing the NAFTA agreement
in 1994, the U.S., especially states closest to Mexico, has frequently traded with Mexico. This
can be observed from the U.S. Census Bureau data in the exports by state section. Based on the
U.S. Census Bureau Exports data, most of Texas’s goods are exported to Mexico. Region 7
includes some of the middle states that are not as active in trade as coastal states. By examining
Region 2 data, we can see that their released pounds are fairly low. Surprisingly, the pounds
released in Region 7 are significantly higher than the pounds released in Region 2. One possible
reason might be that since middle states are not as crowded as costal states such as New York,
more industries are located in these open areas where it is not as congested. However, this is
inconclusive as well. The reasons why emissions are fairly low compared to Region 2 and 7 are
unknown. Nevertheless, we can conclude that the release of emissions is decreasing over time.
This can be due to technology advancement. Many industries may be investing on making their

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technology more environmental-friendly, or they might have found alternative materials to use
for production that are degradable.
IIIB. Environmental Effects from Transportation of Goods
There are three main ways that goods are traded and transported among different
countries, and even by regions: air, water, and land. However, seaborne and airborne
transportation contribute to “more than 7% of total global CO2 emissions”
(http://www.epa.gov/international/trade/transport.html). Since increasing trade directly implies
that goods will need to be constantly imported and exported, transportation vehicles will be used
in order to transfer these goods. Transportation vehicles all use polluting oils and fuels in order
to run their engines. The U.S. EPA has been monitoring aircraft on lead emissions, a
carcinogenic chemical, for the past several years. Table 1 shows the airports that had lead
emissions of 0.50 tons or more in 2008 (http://www.epa.gov/otaq/aviation.htm). This table
supports the idea that airplanes emit harmful chemicals when they are flown. Airplanes do not
only emit lead, but they also emit other harmful gases that are dangerous to our health.

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This incomplete table is only an example of one of the harmful chemicals that is emitted to the
air. Since transporting goods by sea is another way of emitting greenhouse gases, the U.S. EPA
has also been involved in this regulation. U.S. EPA’s final emission standards are under the
Clean Air Act, which states that new marine diesel engines must be replaced onto ships if the
engines are below 30 liters per cylinder. Although goods are transported by air, water, and land,
on-land vehicles are not usually used for international trade. Instead, they are usually used for
private transportation needs, such as people owning their own cars, or riding on public
transportation. This does not mean that on-land vehicles are not used at all for international
trade—they use trucks to transport goods from one region to another. The Religious Tolerance
organization claim that “a light truck = consumes 813 gallons of gasoline, and emit 108 pounds
of hydrocarbons, 16,035 pounds of CO2, 845 pounds of CO, and 55.8 pounds of nitrogen oxides”
(http://www.religioustolerance.org/tomek33.htm). Although many vehicles are still checked for
smog, there are greenhouse gases emitted. Knowing this, many environmental firms including
the U.S. EPA made a Draft Rule of mandatory reporting of greenhouse gas emissions. Not only
does the Draft Rule focus on monitoring vehicles, but it also focuses on a wide range of other
greenhouse gas sources such as industrial facilities and manufacturers. This means that the Draft
Rule also monitors the air, land, and water vehicles. Having these regulations and monitoring the
detrimental effects of the environment prove that air, water, and land vehicles have been big
contributors to air and water pollution.
Another main claim that (de Melo, Grether, & Mathys, 2009) mentioned in their article is
that the increase in trade will contribute to increase in emissions due to transporting imports and
exports. They have raised the question of whether or not autarky would decrease pollution. If
there was no trade whatsoever, then “opening up to trade leads to an increase of about 10%

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(3.5%) in emissions in 1990 (2000)” (Grether et al., 2009). Some of their other reports state that
“international-trade related transport emissions accounted for about 5%-9% of worldwide
manufacturing-related production emissions of SO2—account to roughly one third to three
quarters of total trade-related emissions across the 1990-2000 period” (Grether et al., 2009). In
support of Grether’s Mathy’s, & Melo’s claim, the Religious Tolerance organization has claimed
that oil use increased by 200% since 1973 due to an increase in transportation and in correlation,
emission levels are increasing (http://www.religioustolerance.org/). Particularly, this website
discusses that transporting foods internationally contributes to using more petroleum by four to
seventeen times than if a consumer were to buy the same foods grown and processed locally.
Nonetheless, it is inconclusive to state that the increases in transportation due to trade directly
relate to increases in air and water pollution. Further research needs to be conducted in order to
obtain more concrete data.
IV. Health Effects from Pollution
The main purpose of emphasizing on environmental regulations is the ultimate and
leading consequences of pollution emissions: detrimental health effects. One way health effects
are monitored is using the RSEI model. The RSEI model is not only used to examine the released
emission from different facilities, but it is used to analyze data on released chemicals that might
affect human health risks. RSEI uses information from the Toxics Release Inventory (TRI)
where it computes a risk score that the U.S. EPA uses as an indicator. RSEI is used to see trends
in toxicity of chemicals, releases, and the population affected by the chemical releases. The risk
score is the product of the size of the population, the toxicity weight, and the concentration of the
chemical. The toxicity weight is measured in pounds, and the concentration, also known as
surrogate dose, of the chemical is measured in mg/kg, which indicates that for however many

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milligrams of chemicals is exposed in however much a person weighs in kilograms. Hence, risk
scores are usually higher when there is a large population to be considered compared to an area
where there are not as many people exposed to the chemical releases. However, risk scores
would also be high even if there was not a huge population to be considered, if the concentration
of the toxic chemical is high. For example, suppose there are two areas—we will call the first
area A and the second area B. Suppose that Area A has 100 people with a toxic weight of 80
pounds and a surrogate dose of 50 mg/kg, and Area B has 200 people with a toxic weight of 50
pounds and a surrogate dose of 40 mg/kg both have a risk score of 4 x 105
. Area A has a higher
toxic weight and surrogate dose than Area B, but Area B has a significantly higher population
which makes up for the ‘losses.’ Hence, risk scores are calculated by the priority of how dense
the population is in certain areas, or how toxic certain emissions are by monitoring how many
total pounds of emissions are released. Analyzing the following graph, we can see that there is a
positive correlation between released emissions and the risk score.
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The released emissions include both noncancerous and cancerous chemicals. Nonetheless, a
chemical that is not cancerous does not imply that it does no harm to organisms and the
environment. Therefore, the U.S. EPA have been monitoring and researching all chemicals to see
the effects of organisms depending on how high the level of exposure is. An example of a
noncancerous chemical is CO2. However, this chemical gives us cancer indirectly: Excess CO2
deteriorates the ozone (O3) layer, a necessary outer layer that protects us from harmful ultraviolet
rays. Frequently being exposed to ultraviolet rays lead to skin cancer, declination of the immune
system, and eye cataracts. An example of a carcinogenic chemical is lead, which was mentioned
in Section IIIB. Consuming and inhaling lead have many detrimental health effects, such as
damages to the central and peripheral nervous system, increased blood pressure, hearing and
vision impairment, reproductive problems, defects of fetal development, brain damage, mental
retardation, liver and kidney damage, delays in development, anemia, and in extreme cases, even
death (http://www.epa.gov/superfund/health/contaminants/lead/health.htm#Health%20Concerns).
As we can see, people have been affected by pollution implicitly and explicitly, thus
environmental regulations have been created.
V. Conclusion
Attempting to find the direct relationship between international trade, pollution, and
health effects is difficult, since many other factors and variables have not been included in my
models. However, if we were to relate them in a simplistic manner, then by observing the
increase in % GDP in the U.S., trade is increasing. Additionally, the results of the relationship
between exports and released emissions show that there is a positive correlation. Lastly, the
increase in emissions also gives us higher risk scores, meaning that there are increased
detrimental health effects due to an increase in pollution. However, all of these do not imply that

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all countries should abide to autarky. By looking at the World’s % GDP on the World Bank
website, we can see that there is an increase in % GDP, meaning that international trade
promotes economic growth (http://search.worldbank.org/all?qterm=trade). Therefore, as long as
we find the right balance of environmental regulation while promoting economic growth,
international trade is beneficial.

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References
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Copeland, B.R. & Taylor, M. S. (2004). Trade, Growth, and the Environment.
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Grether, J., Mathys, N.A., & de Melo, J. (2009, November). Trade, pollution, and the
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Kummer, K. (1994). Transboundary Movements of Hazardous Wastes at the Interface of
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