Environmental policy in an integrated world economy

Abstract

This paper critically assesses the literature on the relationship between economic integration and the environment. In particular, we investigate how trade liberalisation and capital market integration affect environmental policy and thus environmental quality. Conversely, we also study how environmental policy can be used to serve non-environmental (trade policy) goals. The interaction between economic integration and environmental policy is not only approached from a traditional social welfare maximising perspective, but - as a novelty - also includes the emerging political-economic literature on this set of issues. This altered perspective leads us to substantially different results. Moreover, we present the substantial empirical evidence for both perspectives. This allows us to put the theoretical findings in perspective.