We obtain this conclusion by estimating a very simple model highlighting the interaction of factor endowment and income differences in determining the pattern of trade. Our approach, while relatively straightforward, is novel in three respects. First, by exploiting the panel structure of our data set, we are able to distinguish empirically between the negative environmental consequences of scalar increases in economic activity – the scale effect – and the positive environmental consequences of increases in income that call for cleaner production methods – the technique effect. This distinction is important for many reasons. Our estimates indicate that a 1% increase in the scale of economic activity raises concentrations by approximately .3%, but the accompanying increase in income drives concentrations down by approximately 1.4% via a technique effect.
Second, we devise a method for isolating how trade-induced changes in the composition of output affects pollution concentrations. Both the pollution haven hypothesis and the factor endowment hypothesis predict openness to trade will alter the composition of national output in a way that depends on a nation’s comparative advantage. For example in the pollution haven hypothesis, poor countries get dirtier with trade while rich countries get cleaner. As a result, looking for a consistent relationship between additional pollution and openness to trade (across a panel of both rich and poor countries) is unlikely to be fruitful. Instead we look for trade’s composition effect after conditioning on country characteristics. We find that openness per se, measured in a variety of ways, has very little consistent impact on pollution concentrations. Openness conditioned on country characteristics has however a highly significant, but relatively small, impact on pollution concentrations.