5. Implications of Globalization and Trade for Water Quality in Transboundary Rivers

Increases in international trade have a variety of effects on the environment through the location, scale, and techniques of production. International trade may also have special effects on transboundary resources, such as international rivers as trade provides greater opportunities for policy coordination between trading partners who share a resource. This chapter discusses several mechanisms by which trade may facilitate coordination: trade may provide opportunities for linkage between environmental and trade concessions, facilitate implicit side payments, grant countries direct leverage over other countries’ production, and instill a perception of shared goals between countries. An empirical section reports a test of the effects of globalization (interpreted in the regression equations as overall trade) and trade specifically between countries sharing a natural resource. The United Nation’s Global Environmental Monitoring System (GEMS) provides data on water quality at river monitoring stations around the world. We have coded these stations to indicate whether the rivers cross international borders, and if so, which countries share the river. We then merged these data with information on bilateral trade between upstream and downstream countries and characteristics of these countries such as their income levels and trade openness. The results suggest that water pollution is lower in rivers shared between countries with more trade; supporting the hypothesis that trade promotes coordination of environmental policies.