The multiplier effect of globalization

This study uses a three-stage common agency model to explore the linkages between trade policy, corruption and environmental policy in an imperfect market setting. We show that the effect of trade liberalization on the stringency of environmental policy depends critically on the level of corruption—in relatively corrupt countries, trade openness leads to more stringent environmental policy. In such countries, this interaction, therefore, lends trade liberalization a type of “multiplier effect,” raising both economic growth and environmental policy stringency.