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Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD 1990-96

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Author Info

  • Mark N. Harris

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Central European University, Hungary)

  • László Kónya

    (Victoria University, Australia)

  • László Mátyás

    (Central European University, Hungary, Budapest University of Economics, Hungary)

Abstract

Since the early seventies an increasing attention has been paid to the impact environmental policy has on foreign trade. One of the most important issues is whether countries with relatively strict environmental regulat ions tend to experience a deterioration of international competitiveness and thus a fall in the exports, and a rise in the imports, of t he pollution-intensive commodities or, on the other hand, benefit from the improvement in environmental quality and are likely to develop new comparative advantages in the environmentally more sensitive industries. So far, most empirical studies have concluded that the proportion of environmental costs to the total production costs is still so marginal that environmental policies have hardly any effect on comparative advantage patterns and thus on foreign trade. One of the few exceptions is Van Beers and Van den Bergh (1997), who found that stricter regulat ions have some negative impact on bilateral trade flows between OECD countries. The aim of this paper is to show that t his outcome is part ly due to model mis-specification. The analysis is based on a triple indexed fixed-effects model and on its variant's. It is found that, as so on as both t he importing and exporting country specific effects are taken into consideration, the relationship between stricter regulations and foreign trade becomes statist ically insignificant. This suggests that environmental costs do not have a real impact, neither negative nor positive, on foreign trade.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2000n11.

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Length: 24 pages
Date of creation: Jul 2000
Date of revision:
Handle: RePEc:iae:iaewps:wp2000n11

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  1. Xing, Yuqing & Kolstad, Charles, 1996. "Environment and Trade: A Review of Theory and Issues," MPRA Paper 27694, University Library of Munich, Germany.
  2. Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
  3. Sorsa, Piritta & DEC, 1994. "Competitiveness and environmental standards : some exploratory results," Policy Research Working Paper Series 1249, The World Bank.
  4. Dean, Judith M., 1992. "Trade and the environment : a survey of the literature," Policy Research Working Paper Series 966, The World Bank.
  5. van Beers, Cees & van den Bergh, Jeroen C J M, 1997. "An Empirical Multi-country Analysis of the Impact of Environmental Regulations on Foreign Trade Flows," Kyklos, Wiley Blackwell, vol. 50(1), pages 29-46.
  6. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
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Cited by:
  1. Jean-Marie GRETHER & Nicole A. MATHYS & Jaime de MELO, 2012. "Unravelling the Worldwide Pollution Haven Effect," Working Papers P40, FERDI.
  2. Robert SOVA & Ion STANCU & Laurentiu FRATILA & Anamaria SOVA, 2011. "Corporate Social Responsibility and its Macroeconomic Implications," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 12(1), pages 172-183, March.
  3. Babool, Md. Ashfaqul Islam & Reed, Michael R., 2005. "International Competitiveness and Environmental Regulations," 2005 Annual meeting, July 24-27, Providence, RI 19496, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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