IMPACT OF TRADE ON ENVIRONMENT
ORGANIZATION OF THE STUDIES
• Literature Review
• Data and methodology
? To check the relationship among trade and environment.
? To investigate the association among the trade and CO2
This study shows the revealed impact of trade on environment degradation in Pakistan and used the time series data in the study start from 1973-2016.Trade and FDI (Foreign direct investment) are used explanatory variables and environmental degradation are used dependent variable.Co2 emission are used as proxy variable. In this study used the OLS technique to check the empirical result.Johansen co-integration technique applied for long run estimation.Finding shows the environmental resources is imperative needed for trade development.
Key Words: trade, CO2 emission, FDI, inflation
This Paper estimate the impact of trade on the environment. The impact of environmental is measured by emission instead of air quality. I use the method develop by the FRANKEL and ROSE (2005) that show the relationship Trade, Environment, and Income. If trade is good for the environment, trade openness that should encouraged by countries (coprland and taylor 1994).Economic literature base on trade theory of neoclassical mostly involve the regulation of industry, environment whether it related to wages etcthat effect the industry negatively increase cost. Home country and industry negative impact on trade position as compare the rest of the world industries. Chemical Law monitors importers and producers of chemical substances to check health danger and unnecessary environmental impact. Environmental regulation is existence the trade of increase the industry. Competitiveness of industry negatively effect on trade of environmental regulation countries. Sustainable protection and development are the goal of World Trade Organization. The issue of climate change World trade Organization are not make specific rule. Therefore, World Trade Organization is applicable because policies change in different way. . In this paper point out there is difficulties WTO faces when dealing with multilateral trade and domestics environmental policies. Increase in per capita income effect by greater enhances consumer focuses environmental friendly product. Free trade is responsible for many environmental degradation and failure of policy makers to protect the environment. There is reason about the environment consequences of free trade, environmental protection and trade liberalization round of trade negotiations. Sulfur dioxide (SO2) and Nitrogen oxides (NOx) both are the cause of air pollution. In the long run if 10% increase in trade decrease more than 10% in sulfur dioxide and nitrogen oxide emission. Further more study is done in Pakistan by USMAN, (2003) point out in the developing countries is different from developed countries. In the same way another study was adopted by Chou Chien-fu, and SHY OZ (1991) to examine the effect of openness to trade o environmental degradation.
Qureshi M.S (2006), this paper investigation the pollution in the Pakistan, systematic analysis of trade and production pattern. By using time series data from 1975 to 2003.In this paper we test the hypothesis in Pakistan that express the net exports product increase in OECD countries. we also explain the environmental governance play the important role in Pakistan exports product. This paper analyzes the result change in composition of output and net exports.This paper finding the result effective environmental policy for poverty and development.
Mohsin et al (2013), this paper study the potential social demographic and identify the overweight and effective potential strategies. In this paper we study those cities which are located in North West Pakistan. Height and weight measure the anthropometric method. There were increase the overweight and increasing in age.In this study developing countries increase the income level with increase the level of overweight.
Pasha, H.A & Imran M. (2012) this paper examine the volume and trade of IND-PAK given they extend the trade between both countries. In the present are Barries of tariff and non tariff in India and Pakistan. This paper also analyzes the bilateral trade are best to India.In this study using the OLS methodology.This paper finding the opportunities and threats between India and Pakistan.
Gul, N.&Yasin,H.M, (2011) this paper show the estimate Pakistan trade using the model of trade. By using the panel data 1981 to 2005 analysis the 42 countries.Pakistan examine the way improve the trade which countries concern.In the end political and social among near countries. In the case European Union and NAFTA, Pakistan exports the effect the political considerations.
PellegriniL. (2011), this paper we analysis the corruption and deforestation in SWAT, Pakistan. Corruption is the process of deforestation.Corruption is the study of institutional limit scope and reduce the specific corruption sector.In this study ‘crime and punishment is not sound of institutional environment.This study show the result need the institutional change with specific corruption sector.
Ali Z. et al. (2015) this paper show the relationship between trade and environment is major issue of international trade.By using time series data 1980-2010. This period show the relationship between trade liberalization and air quality in PAK by using the Granger causality test. This Paper uses the FDI test. FDI generate the pollution technology toward CO2 emission in PAK. Foreign trade also reason to increase the production due to trade and again reason CO2 in air. That result in harm the air quality in environment.We also analysis between FDI and composition effect. In the end this composition cause of technology due to trade strategy in PAK.
Awan A.G (2013), this paper investigation environmental pollution is highly Problem of every country. Natural resources are decreasing the problem for next generation.Every country trying the economic growth for standard living people. Environmental problems are difficult due to excess resources. This paper use the methodology how statistical techniques are measure the impact of environmental pollution. This was due to IMF, World Bank and books. In the end findings are environmental resources are need for economic development.
Zafar F. et al (2013), this paper study about the trade liberalization and corruption on environmental degradation.By using the tine series data from period of 1980-2011. Air and water pollution are used in environmental keys. Trade liberalization and corruption are explanatory variables used. This paper used the ADF test. ADF test are used to check the variables in the model.
Abbas, M. ; Raza, H. (2013), this paper shows the effect of trade deficit on Pakistan economy. Trade deficit are independent and GDP. Foreign investment rate are the dependent variables.By using time series data from 1988 to 2011. We used the histogram, OLS method. So in the end result show the positive relationship between dependent variables and independent variables. Trade deficit should decrease export as compare imports.
Alam S, (2015) this Paper study about the effect of free trade agreements on Pakistan exports.By using the period of time series data from 2003-2010. Data from the World Bank analysis using the panel technique. The SAFTA and PTAs better the export with Iran and China. Product Diversification decreases the Sri Lanka and China.
Karsalari, A. Ret al… (2014) this paper examine that the relationship between environmental quality, economic growth and trade. By using time series data period from 1970 to 2011.We found the results positive relationship between per capita income and trade.
Yang, and Yang, Y. (2008) This paper shows that the impact of economics activities in society. By using time series data period from 1982 to 2006.This paper shows the method of environmental pollution and various decomposition method by using the model of VAR to study the impact on trade. In this study use the FDI test. This paper shows the result to improve our environmental import and exports trade.
Sun P. ;Heshmati A.(2010).This paper study that the role of international trade on economic growth. By using the panel data of 31 provinces from 2002 to 2007.In this study we use OLS method. This paper analysis the effect of international trade on economic growth through the improve the productivity in the country. We found that analyzing the improvement in productivity based on 6 year.
VISHUPHONG, P. (2016). This paper shows that trade rise environmental degradation. We study the impacts of trade on environmental. In this study we use the CGE methodology. We found the result trade is good for economic growth but not for environment. Environmental policy is high for economic contraction.
Arshad K.M, (2007) This study investigates the impact of trade on financial liberalization on economic growth in Pakistan. By using the time series data period from 1961 to 2005. This paper based on testing of cointegration advance by Pesarson et al (2001). The finding of this study is that both trade and financial liberalization policies play an important role in economic growth in Pakistan in long run. Whereas short-run treated of real deposit rate and policy variables are very low.
Jail A. ;Feridun M. (2011) This paper shows the effect of financial sector development on economic growth in Pakistan. By using time series data period from 1975-2008. Financial depth indicator is built using principal component analysis (PCA). In this paper using the Autoregressive Distributed Lag (ADRL) test. In the end this study shows the result that presence of positive and significant relationship between economic growth and financial development.
Islam F. et al (2012) This paper shows the relationship between change in real exchange rate and trade balance of Pakistan. By using time series data period from 18980-2006. Using the Autoregressive Distributed Lag (ADRL) test to examine the possible long-run relationship. In this paper result shows long-run relationship between the series exists and the coefficient of elasticity has statistically significant and negative. Such policy may not be produce is desired outcome that is trade balance may not be improve.
Sundas R. et al (2014) The purpose of this study effect of foreign direct investment on Pakistan economic growth. By using the time series data period from 1972 to 2012. This study shows the foreign direct investment has significant factor of economic development in Pakistan. Basically FDI and other three variables such as political stability, trade openness and terrorist attacks also used in this study. In this study used the least square method. in this method to check out the effect of these variable on GDP of Pakistan. This study shows the result that FDI has been positive significant effect on economic growth in Pakistan.
Jan D. ; Karim R. (2016) This paper status of implementation of World Trade Origanizationand impact of external trade on Pakistan. The aim of this study to adopted methodology which testing the hypothesis that states, “Pakistan’s foreign trade is expected to be largely better off once WTO’s regime is fully implemented in Pakistan and rest of the world”. By using the data from 2000-2005. This stated analysis thus supports partial acceptance of hypothesis, which states that “Pakistan’s foreign trade is expected to be largely better off once WTO’s regime is fully implemented in Pakistan and rest of the world”. Pakistan still face the problem of trade deficit after the WTO implementation.
Khan M.M (2008) The main purpose of this study to pointed out the main features of interest-free banking system in Pakistan over the last three decades. In this paper use the time series data from 1980-2006. This paper investigation of strategies and practical issues with Islamic banking system. Legislative and religious institution of Pakistan is setting the interest free banking system in the country. The result of this paper is that practical, institutional, political by the government and policy makers of Pakistan. Pakistan is based Muslim country that holds the interest responsibility from country and socio-economic order.
Rehman H. et al (2010) The aim of this paper to investigated the impact of exchange inflows on real exchange rate of Pakistan. Using the time period from 1993-2009. The behavioral equilibrium real exchange rate (BEER) uses the econometrics technique of cointegration to evaluate the behavioral between real exchange rate and macroeconomic fundamental. The finding of this study is that investigation of impact of foreign exchange inflows in Pakistan from Foreign Direct Trade on equilibrium real exchange rate in Pakistan.
Data and Methodology
I will use the time series data from the period of 1973-2016.In which used the various data sources such as World Bank Data base, WDI.
In which dependent variable are Environment and Independent variable are used Foreign Direct Investment, Inflation, and trade. CO2 is the proxy variable. To measure this association the following model is used.Our data is time series so we used Johansen Co-integration technique. ENV=f (TRADE, FDI)
The following econometrics model is used to define this relationship among them.
FDI=foreign direct investment
For this analysis Augmented dickey-fuller (ADF) test is mainly used to test the unit root problem in the series. H0 = 0 is the series has unit root Problem. Trade, inflation, and FDI are used as a target variable.
Empirical results and interpretations:
Variable Coefficient Std. Error t-Statistic Prob.
C 661.3308 2687.973 0.246033 0.8069
TRADE 2.27E-08 1.48E-09 15.30179 0.0000
FDI 0.251661 2.828191 0.088983 0.9295
R-sequrae is 0.857345, which shows the model is significantt.
All estimation are presented here in standard form. Table II shows the descriptive statistics.
Table II- Descriptive Statistics
TI CO2 TRADE FDI
Average 38458.72 1.66284E+12 63.52873
Probability 0.0891 0.0174 0.0023
Unite Root Test:
For this analysis augmented dickey-fuller (ADF) is mainly used the test of series of unite root. ADF unite root test used to test the stationary level of series. Table IIIis shows the stationary levels with both level and 1st difference values. All variables are stationary at 1st difference. So in this paper used the Johansen Co-integration test.
Table III- Results of Unite Root Test
Augmented Dickey Fuller Test
Variables At level At first difference
intercept Trend and intercept Intercept Trend and intercept
CO2 -0.689714 -1.742384 -6.273972* -6.220165* I(1)
FDI -2.163559 -1.394150 -4.480309* -4.842097* I(1)
TRADE -0.624368 -2.481730 -6.677553* -6.593324* I(1)
*, denote the test significance so all variables are stationary at 1st difference.
The test of Johansen Co-Integration Test:
To check the long run and short run relationship between the variables Johansen co-integration technique and ECM are used. While variables become stationary at first difference with ADF test so Johansen co-integration technique is applied.
Hypothesized Trace 0.05
No. of CE(s) Eigenvalue Statistic Critical Value
None 0.269472 17.31042 29.79707
At most 1 0.102022 4.436936 15.49471
At most 2 0.000609 0.024960 3.841466
Trace test indicate no cointegration at the 0.05 level.
Table v: Results of ECM
Variable Coefficient t-Statistic
CO2 0.093107 0.502949
TRADE 3.42E-09 1.036040
FDI 202.0576 0.153382
ECM(-1) -0.004276 -0.518368
Estimate the result of “short run ECM estimate”
ECM shows the two conditions:
1)-ve value ; that value 0