Regional Trade Integration by Environmental Goods

With the emphasis on the effects of regional trade integration and production fragmentation, this paper investigates the determinants of trade networks focusing on environmental goods, according to the Asia-Pacific Economic Cooperation classification by each of the commodity groups of HS84, HS85, and HS90, which include important commodities having the purpose of protecting the environments. The gravity analysis with consideration of trade in parts and components, for which newly industrialized Asian economies have advantage, and regional dummies verifies not only that trade in environmental goods is expanding more rapidly but also production fragmentation depending on trade in parts and components is a key factor to expand the overall trade in environmental goods among the APEC countries and members of the Japan-Association of Southeast Asian Nations Free Trade Agreements. These results suggest that the commitment by Asia-Pacific Economic Cooperation to liberalize trade of environmental goods is crucial for regional economic integration through promoting international production fragmentation and also for environmental protection by expanding world demand for environmental goods through activating regional trade.