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David Hummels

Professor of Economics, Krannert School of Management

At what price progress?

As an economist, David Hummels focuses on international trade. As a world citizen, he’s concerned about the greater impact of business decisions on the environment. As a researcher, his insights could help guide international trade policy and economic development.

In his work with the National Bureau of Economic Research (NBER), Hummels is investigating the effects of trade liberalization on transportation, and how that might ultimately impact economic development, greenhouse-gas emissions and climate change.

“This much is obvious –– trade liberalization, the removal of all existing import and export tariffs and subsides, will result in greater demand for international transport,” he says. “But what is the extent and composition of the change?

“Put another way, are the emissions from a million euro value of exports shipped on rail from France to Germany dramatically different than the emissions from a million euro value of exports shipped on airplanes from China to Germany?”

His study, first presented in Paris at the June 2009 Organization for Economic Cooperation and Development Global Forum on Trade and Climate Change, required the daunting integration of data from a trade simulation, the weight and value of traded goods, the transportation usages of 40 countries across 29 product sectors, and emissions associated with transport.

A modest 5.8 percent projected growth in the value of trade post-liberalization wasn’t a surprising finding of Hummels’ research, but a projected 10 percent increase in greenhouse gases had several important implications.

The emissions growth would be concentrated in agriculture, textile and wearing apparel products, which are currently subject to some of the highest tariffs. And tariff preferences enjoyed by nearby trading partners through NAFTA and the European Union would be eliminated, resulting in a trade shift toward distant partners such as Asia and Latin America that cannot be reached by land transport.

In addition, the growth of trade in terms of weight would be twice as great as the growth of trade by value, ultimately leading to a significant contraction in the worldwide use of road and rail transport and an expansion in air and ocean transport.

“The composition of trade has a first-order impact on the types of transportation employed and the associated greenhouse-gas emissions,” he says. “Any climate mitigation policy such as a carbon tax could have pronounced effects on how goods move and the kinds of goods that nations trade.”

In the classroom, Hummels illustrates the link between economics and the environment with smog-shrouded photos of modern-day Beijing, China, and Pittsburgh, Pennsylvania, at the height of the industrial revolution. Though taken nearly a century apart, the similarity of the images suggest that we can build a sustainable future only by first learning from mistakes of the past.

“We have good evidence that as incomes increase, the preferred consumption basket changes,” he explains. “At lower income levels like those in developing countries, people mostly buy food, and if they earn enough money, material goods. Over time, our growing income will mean that the value we collectively attach to experiential consumption and the environment will continue to rise.”

Photos by: Andrew Hancock