Political Economy and the Interaction Between International Trade and Environmental Policies

What role does politics play in shaping the effect of international trade on the environment? In this article, we investigate the following questions: Under pressure from local industry, do governments ignore environmental concerns to remain globally competitive? Or do governments cloak protectionism as new and more stringent environmental policy? Does globalization allow lobbies to form more readily and weaken environmental policy? Or does voter economic interest determine environmental policy in an open economy? Our aim is to provide a simple narrative that synthesizes the main political economy insights in the economic literature of trade and the environment.The argument behind the 'race to the bottom' hypothesis is illustrated and a description given as well of how raising an importing rivals' cost can cause a 'ratcheting up of environmental standards' instead. Conditions where international trade weakens industrial lobbies, creates voter support for stricter environmental regulation, reduces corruption, and increases informal pressure for a cleaner industry are highlighted. Conditions where international trade is a negative force on environmental policy are also discussed.