for specific countries (Egli 2004), or panel data (Dijkgraaf and Vollebergh 2004; de Bruyn, van den Bergh, and Opschoor 1998). While studies focusing on sulfur dioxide, nitrogen oxide, suspended particulates, and an aggregate measure of air pollution tend to support the existence of an EKC (Grossman and Krueger 1992; Markandya, Golub, and Pedroso- Galinato 2006), papers studying carbon dioxide emissions (Aslanidis 2009) or water pollution are less conclusive (Hettige, Mani, and Wheeler 2000). The EKC may vary with country-specific characteristics, but studies supporting the EKC hypothesis suggest that the turning point<sup>5</sup> . ranges from US$2,805 (Halkos 2003) to US$9,239 (Stern and Common 2001) According to these studies, with the exception of Costa Rica, all countries in Central America would currently be placed in transition or in the increasing part of the EKC<sup>6</sup> .

Empirical studies testing for the direct effects of trade on the environment are less conclusive. For example, Gamper-Rabindran and Jha (2004) empirically analyze the relationship between trade liberalization and the environment in the Indian context. Their findings indicate that exports and foreign direct investment grew in the more-polluting sectors relative to the less-polluting sectors between the preand post-liberalization periods. Mani and Jha (2006) and Akbostanci, Ipek Tunc, and Türüt-Asik (2004) find similar results for Vietnam and Turkey, respectively. Dean (2002) supports the idea that trade liberalization had both a direct and an indirect effect on emission growth in China and these effects could be opposite in sign. In contrast to this works, Grossman and Krueger (1993) found no evidence that a comparative advantage is being created by lax environmental regulations in Mexico. This result is also confirmed by Stern (2005), who finds only small pollution effects of NAFTA on Mexico shortly after the agreement, followed by an improvement in environmental quality afterwards. Gale and Mendez (1998) suggests a strong link between capital abundance and pollution concentrations in production and trade composition even after controlling for incomes per capita (supposed link to the country’s regulatory framework). Finally, Melo, Grether and Mathys (2007) measures the aggregate effects of trade on pollution taking into account a large sample of developed and developing countries. The author argue that contrarily to concerns raised by environmentalists, an emission-decomposition exercise shows that scale effects are dominated by technique effects working towards a reduction in emissions worldwide.

While data and methodological issues could help to explain the differences in findings, one interesting pattern arises from the literature. Consistent with the predictions of Kahn and Yoshino (2004), positive links between international trade and pollution are more frequently identified in studies dealing with middle-income countries. These and a few other findings from the literature will help to guide discussion of the possible and expected implications of DR-CAFTA for the environment in the Central America economies.

_Possible Environmental Developments for the DR-CAFTA_ There are significant differences among DR-CAFTA countries. Countries differ not only in their regulatory environments, but also in their level of development, income, and human and physical capital endowments. Following the predictions of EKC theory, one would guess that, even before the agreement, countries were likely to be experiencing different trends with respect to pollution emissions. Both level of

> 5 Defined as the level of income per capita (purchasing power parity, PPP) beyond which emissions start to decline. 6 Per capita GDP (US$, PPP) in 2009: Costa Rica, US$10,737; Dominican Republic, US$8,570; El Salvador, US$7,570; Guatemala, US$4,873; Honduras, US$4,282; Nicaragua, US$2,668.

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