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Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD, 1990-1996

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  • Mark N. Harris
  • László Kónya
  • László Mátyás

Abstract

Since the early seventies an increasing attention has been paid to the impact environmental polict nmight have on foreign trade. One of the most important issues is whether countries with relatively strict environmental regulations tend to experience a deterioration of international competitiveness and thus a fall in exports and a rise in imports, of the pollution-intensive commodities or, on the other hand, benefit from the improvement in 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 regulations have some negative impact on bilateral trade flows between OECD countries. The aim of this paper is to show that tyhis outcome is partly due to model mis-specification. The analysis id based on a triple indexed model and on its variants. It is found that, as soon as both the importing and exporting country specific effects are taken into consideration, the relationship between stricter regulations and foreign trade becomes statistically insignificant. This suggests that environmental costs do not have a real impact, neither negative nor positive, on foreign trade. Copyright Blackwell Publishers Ltd 2002.

Suggested Citation

  • Mark N. Harris & László Kónya & László Mátyás, 2002. "Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD, 1990-1996," The World Economy, Wiley Blackwell, vol. 25(3), pages 387-405, March.
  • Handle: RePEc:bla:worlde:v:25:y:2002:i:3:p:387-405
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    Citations

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    Cited by:

    1. Azam, Sardor, 2016. "Trade and Environment: Do Spatial Effects Matter?," MPRA Paper 73113, University Library of Munich, Germany, revised Jun 2016.
    2. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
    3. Drogué, Sophie & DeMaria, Federica, 2012. "Pesticide residues and trade, the apple of discord?," Food Policy, Elsevier, vol. 37(6), pages 641-649.
    4. Arouri, Mohamed El Hedi & Caporale, Guglielmo Maria & Rault, Christophe & Sova, Robert & Sova, Anamaria, 2012. "Environmental Regulation and Competitiveness: Evidence from Romania," Ecological Economics, Elsevier, vol. 81(C), pages 130-139.
    5. repec:eee:eneeco:v:64:y:2017:i:c:p:170-176 is not listed on IDEAS
    6. Konya, Laszlo & Matyas, Laszlo & Harris, Mark, 2011. "GATT/WTO membership does promote international trade after all – Some new empirical evidence," MPRA Paper 34978, University Library of Munich, Germany, revised 20 Nov 2011.
    7. M A Cole & R J R Elliott, 2003. "Do Environmental Regulations Influence Trade Patterns? Testing New and Old Trade Theories," The School of Economics Discussion Paper Series 0310, Economics, The University of Manchester.
    8. Felix Groba, 2014. "Determinants of trade with solar energy technology components: evidence on the porter hypothesis?," Applied Economics, Taylor & Francis Journals, vol. 46(5), pages 503-526, February.
    9. Roberta De Santis, 2012. "Impact of Environmental Regulations on Trade in the Main EU Countries: Conflict or Synergy?," The World Economy, Wiley Blackwell, vol. 35(7), pages 799-815, July.
    10. Drogué, S. & DeMaria, F., 2012. "« Comparing apples with pears. How differences in pesticide residues regulations impact trade? »," Working Papers MOISA 201201, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro - Montpellier, France.
    11. Xiao Chen & Alan Woodland, 2013. "International trade and climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 381-413, June.
    12. Tsurumi Tetsuya & Managi Shunsuke & Hibiki Akira, 2015. "Do Environmental Regulations Increase Bilateral Trade Flows?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1549-1577, October.
    13. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
    14. Felix Groba & Barbara Breitschopf, 2013. "Impact of Renewable Energy Policy and Use on Innovation: A Literature Review," Discussion Papers of DIW Berlin 1318, DIW Berlin, German Institute for Economic Research.
    15. Antonello Zanfei & Giovanni Marin, 2018. "Does Host Market Regulation Induce Cross Border Environmental Innovation?," Working Papers 1803, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2018.
    16. M A Cole & R J R Elliott & K Shimamoto, 2003. "US Specialization in Pollution-Intensive Industries: Factor Intensities versus Environmental Regulations," The School of Economics Discussion Paper Series 0321, Economics, The University of Manchester.
    17. repec:eee:riibaf:v:42:y:2017:i:c:p:353-364 is not listed on IDEAS
    18. Doganay, Seda Meyveci & Sayek, Selin & Taskin, Fatma, 2014. "Is environmental efficiency trade inducing or trade hindering?," Energy Economics, Elsevier, vol. 44(C), pages 340-349.
    19. Cole, Matthew A., 2004. "Trade, the pollution haven hypothesis and the environmental Kuznets curve: examining the linkages," Ecological Economics, Elsevier, vol. 48(1), pages 71-81, January.

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