Is India Specialising in Polluting Industries? Evidence from US-India Bilateral Trade

Recently, the apex environmental agency of India observed that domestic industrial pollution has been increasing at an alarming rate over the last two decades, and the need to rein in traditional polluting industries. This raises the pertinent question of whether the poor domestic pollution regime has affected the pattern of India’s trade in dirty manufactured products in the post-liberalisation era since 1991. We find that on the whole, India has remained a net importer of pollution-intensive manufactured goods; however, there is a distinct trend of increasing specialisation in specific dirty industries especially in the bilateral trade with high-income countries, and to a lesser degree with low-income countries. The USA being India’s single largest country trading partner in the post-liberalisation era, we test for pollution offshoring at the finer industry level in US-India bilateral trade. While we find that the pollution haven effect is not significant, India’s specialisation in certain dirty manufacturing industries through the last decade remains a disturbing trend. India needs to integrate environmental sustainability within industrial growth urgently, and it is pertinent to implement policies which would reflect the true pollution costs in an industry that is increasingly competing in the international market.

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