In the introduction we argued that there is no simple pattern to the relationship between trade, environment and development. Depending on the sector, the country, the markets and prevailing policies, trade and trade liberalization may be good or bad for the environment and development. In fact, they will usually be both at once—good in some ways, bad in others.

This chapter illustrates the point by listing and explaining the complex physical and economic linkages that bind trade and sustainable development. For the most part, these consist of the impacts of trade on environment and development. The next chapter, on legal and regulatory linkages, widens the scope to also include the impacts of environmental concerns and environmental law on trade.

Trade flows and trade liberalization have at least four types of physical and economic impacts on environment and development: product effects, technology effects, scale effects and structural effects.¹ Each of these is examined in the following pages.

1 This taxonomy is based on the work of the OECD. See The environmental effects of trade, Paris: OECD, 1994.

4.1 Product effects