There has been an enormous expansion in world trade which has been made possible by technological advancements which have dramatically reduced the cost of transportation and communications, and by the adoption of more open trade and investment policies. The number of countries participating in international trade has increased :developing countries, for instance, now account for 34 per cent of merchandise trade – about double their share in early 1960s. Trade can increase GDP in a number of ways – for example by improving resource allocation through specialization according to comparative advantage or by allowing economies of scale in production to be exploited. Open economies also grow faster because trade fosters investment, innovation and institutional reform. However, development goes beyond higher GDP per capita. Other important indicators are Human Development Indices (HDIs) i.e life expectancy, infant mortality, nutrition, literacy, employment etc, Some of these factors are summarized in HDIs are positively correlated with GDP growth. But no clear picture emerges of the impact of growth on other dimension of development such as income inequality and environmental performance. Various environmental indicators ranging from greenhouse emissions to deforestation can be summarized by an Environmental Performance Index (EPI) which in turn can be compared to income growth .In the last decade, there has been a positive relationship between growth and environmental quality. This suggests that countries with rising income were able to pay more to preserve the environment. To the extent that trade and other policies can promote economic growth, they may indirectly help to improve natural environment. However, empirical evidence has to date produced mixed results on this question (World Trade Report, 2014). EPI is based on 22 indicators of environmental health and ecosystem viability including pollution, access to clean drinking water, sulphur dioxide emissions, carbon dioxide emissions, agriculture subsidies and critical habitat protection. Higher values of the index represent better environmental quality. Among the fast growing developing economies, some have improved their EPI performance while others have seen deterioration. There is a positive relationship between the EPI and per capita income. This suggests that countries with higher incomes are better able to pay for preserving their environment (World Trade Report, 2014).

Environmental economies refer to the “Environmental Kuznets Curve” (EKC) to identify correlation between per capita income and environmental degradation. The hypothesis is that environmental quality degrades at the early stages of development while beyond a certain income level, environmental quality improves (Grossman and Krueger, 1993). Pollution increases as an economy industrialize and moves from agriculture to manufacturing (a pollution intensive sector). Then, as the country GDP per capita increases, environmental quality improves despite the increase in economic activity (scale effect). This is for several reasons- First, as an economy develops the composition of production changes. Production tends to move away from natural resource intensive goods to services. Secondly, changes in consumption and growing preference for environmentally friendly emerge at higher levels of income. Thirdly, as the country’s level of development increases, the quality of institution improves, as does a country’s capacity to enforce regulatory measures to address environmental problems. Finally a higher GDP per capita also enhances the possibility to exploit economies of scale associated with pollution abatement technologies (Technique Effect).