What happens to the environment when international trade is liberalized is a matter of debate. Two conflicting hypotheses emerge from the debate. The manifestation of the Pollution haven hypothesis (PHH), in direct conflict with the Factor endowment hypothesis (FEH), is that dirty industries may relocate from the North to the South.
The present paper tests both the hypotheses for India’s trade with the rest of the World and the European Union during the 1990s when radical economic reforms have been introduced. The inputoutput method is used and suitably modified to test both the hypotheses considering three pollutants (CO2, SO2 and NOx). The findings challenge the pollution haven hypothesis arguing that liberalization of trade policy in India has not been associated with pollution intensive industrial development. While it supports the factor endowment hypothesis thus confirming that the export oriented labour requirements are much more in weight than its import counterpart. Hence India gains in terms of emission from trade in both the cases.