The direct impact of trade and investment on the environment is less of an issue compared with the indirect effects of positive GDP growth and resulting prosperity.

Preliminary calculations using data from the World Bank show that gross domestic product has a direct, proportional relationship with the extent of carbon dioxide (CO2) emissions in India, and the relationship is even stronger after the introduction of the liberalization policy in the 1990s. However, trade seems to have an inversely proportional relationship, consistent with the view that India’s imports are mostly manufactured items that may involve polluting production process and are currently being produced outside India.

We believe more specific research is needed to assess the overall environmental impact of patterns of production and consumption. Recent scientific analysis focuses on better scientific measures of the damage and impact of climate change and its effect on inequality. Clearly, warmer regions around the globe, including India and many developing Asian countries, will be affected more than their northern counterparts due to global warming. In fact, recent estimates show that climate change has increased inequality in the United States between the north and the south. Patterns of production are generally induced by the conditions of global trade and investment and by physical infrastructural support and local resources. India and the People’s Republic of China (PRC), the two largest countries in Asia, have very different GDP compositions. This poses the question of whether excessive industrialization coupled with the usual transboundary and climate concerns make the PRC more vulnerable than India, which thrives on service sector growth and in turn benefits from the low pollution content of growth. This also calls for serious exploration of green accounting and the preparation of databases with better environmental indicators.

It will be worthwhile to explore the effect of liberalization on other climatic aspects, such as water pollution and land salinity, with the help of large scientific databases. But only through trade can countries replace the local production of pollution-intensive goods with imports and reduce CO2 emissions. Countries that can replace the production of pollution-intensive goods by imports will reduce CO2 emissions on this count. The growth effect, however, will go the other way. Countries with different trade patterns may suffer on both counts. India is possibly a mixed case and more detailed analysis is needed to examine the hypothesis.