Trade and the environment : an empirical analysis - the case of Malaysia.

International trade liberalization has taken place in Malaysia since the 1960s
and it has significantly contributed to Malaysian socioeconomic and political
stability. Much research focuses on the achievements of the Malaysian economy but
not on the effects of trade liberalization on the environment. As many earlier
researchers associated pollution with manufacturing factories, it is important for the
impact of the trade-led expansion of this sector on the environment in the country to
be measured.
This study covers the period from 1985 to 2006 using national and regional
industrial panel data for four-digit ISle Malaysian manufacturing sectors. During
the period,· the manufacturing and external sectors were the main engines of
economic growth for the country. This study investigates the effect of international
trade on the environment following three routes: regional level study, industrial level
study and bilateral-trades study. Perhaps this three-route investigation of tradeenvironment
relationships is the first in this area of study. Our results show no single
peculiarity that either fully supports or contradicts the main body of literature.
Despite popular beliefs that bilateral trade with developed countries will cause
environmental degradation in Malaysia, this study has proven otherwise. As shown
in the literature, the effects of trade on the environment are country specific and
each country will show different results according to its own circumstances. Factors
of production and countries' comparative advantage in resources appear to be
relevant. The evidence to support the Pollution Haven Hypothesis has not found in
Malaysia. The bilateral study shows that there is no overwhelming evidence for us to
conclude that bilateral exports to developed countries cause more pollution
emissions than bilateral exports to developing countries and neither that Malaysia is
being used as a pollution haven nor other countries are being used by Malaysia as a
pollution haven.