Effect of environmental regulations on trade Essay

Effect of environmental regulations on trade - Essay Example Held and McGrew (2002) review several definitions for globalization and emphasize that while all are accurate, few capture the complexity of the phenomenon and therefore, do not comprehensively define globalization. From their perspective, while it is virtually impossible to define globalization in a single sentence, it can best be described as an economic phenomenon whose primary motivation is the imposition of the capitalism and economic liberalization upon the global economy and, in brief, the globalization of capital.According to this definition, globalization is the removal of obstacles towards the movement of goods and services across national borders, such as import and export taxes, customs and tariffs, resulting in reduced state control over economies and markets.As may be inferred from the foregoing definition, globalization has facilitated the movement of capital goods across national borders, with little, if any, state intervention.Within the context of this understanding , globalization has expanded markets and, importantly, has provided producers, manufacturers and business entities both with access to foreign markets and the ability to compete with domestic goods on relatively equal terms.Even while emphasizing the validity of the aforementioned and stressing that trade liberalization has, to a very large extent, achieved all of the stated, it is important to concede to the fact that environmental regulations have countered the trend towards the free movement of goods and services across national boundaries. ... 2 Effect of Environmental Regulations on Trade As may have been deduced from the introduction, environmental regulations affect international trade volumes and patterns. The extent to which it may do so will be examined in this section. 2.1 Trade Volumes Several studies have upheld the argument that environmental regulations have the potential to function as obstacles to the movement of capital goods and services across national boundaries and, in so doing, afford domestic producers an advantage over foreign ones. These same studies have also found that countries which have comparatively lax environmental regulations have a comparative advantage over those which have more stringent regulations, insofar as attracting foreign direct investment is concerned (McCormick, 2001; Anweiler, Copeland and Taylor, 2002). On the basis of empirical evidence, however, Anweiler, Copeland and Taylor (2002) find that the aforementioned comparative advantage is not sustainable. For example, Mexico's lax environmental regulations may have afforded it a comparative advantage where US foreign direct investment is concerned but it has hardly contributed to the growth of Mexican international trade and exports since operative environmental regulations in ot her countries act as an obstacle to the entry of Mexican exports. Similarly, the comparatively low standards of domestic environmental regulations in the United States have adversely impacted US international trade volumes (McCormick, 2001). Indeed, in his study of US international trade from 1958-1994, McCormick (2001) found that environmental regulations functioned as a serious obstacles to US exports and trade, especially to Europe and