The environmental consequences of trade: Evidence from subnational trade flows

The debate over the environmental consequences of free trade is not only quite heated, but also entails significant policy ramifications. Recently, cross-sectional analysis at the country level has made use of exogenous determinants of trade to identify the causal effect of trade on the environment, finding moderate evidence of a beneficial impact of expanded trade on environmental quality. Given the stakes involved, we revisit this finding using subnational data on ‘trade’ flows across US states and several measures of pollution. Not only does the analysis shed further light on the debate at the international level, but also addresses a heretofore unexamined question: does greater inter-regional commerce at the subnational level harm the environment? Our findings are striking, providing further evidence against a negative environmental impact of trade for the majority of measures analyzed. However, several sources of heterogeneity arise that are noteworthy.