Trade and Environment

This thesis analyses the link between trade and different environmental indicators, in particular regarding air pollution. Exploiting the instrumental variable method to solve for the endogeneity of openness, to be able to inspect the causal relationship , the study tries to untie the different effects trhough which liberalisation affects pollution in a sample including all the countries for which data is available. Depending on the pollutant, 165 is the minimum number of nations included in each regression. The research makes use of a panel data, covering the years from 1990 to 2011, and the Gravity Equation is the instrument used in the analysis, since it is identified as the best performing tool to solve the endogeneity of trade. Furthermore, the link between income growth and pollution, known as the Environmental Kuznets Curve, is investigated as its complementarity with trade in the determination of pollution levels in countries is of topical importance. Results show evidence for an inverse U-shaped relationship between pollution and income, supporting the EKC hypothesis. Furthermore, for the majority of pollutants, it appears that trade has a positive effect on the environment, contributing to the reduction of pollution levels.