The world trade network and the environment

- We investigate the role of the world trade network on the environment.
- We identify the most important countries in the world trade network.
- We estimate the direct and indirect effects of trade on environment.
- Networks' effects harm the environmental quality of developed countries.
- However, such indirect effects improve the environment of developing countries.

This paper analyses the role of the world trade network on the environment. We rely on methods developed for social network analysis to identify the most important countries in connecting trade between all the other countries in the world trade network. We then estimate how the network or indirect effects from trade affect the environmental quality of a country. As the trade networks are endogenously determined by trade and environmental conditions, we use as instrumental variables the growth in the population of trade partners and the growth in the population of trade partners' partners to exploit exogenous variation in the world trade network. Once we simultaneously estimate the environmental, trade, income, and network equations using a three-stage least square procedure, we find that network effects harm the environmental quality of developed countries but improve the environment of developing countries.