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Impact of Environmental Regulations on Trade in the Main EU Countries: Conflict or Synergy?

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  • Roberta De Santis

Abstract

In an increasingly integrated world with declining trade barriers, environmental regulations can have a decisive role in shaping countries’ comparative advantages. The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, this paradigm has been challenged by some analysts. In particular, Porter (1991) and Porter and Van der Linde (1995) argue that pollution is often associated with a waste of resources and that more stringent environmental policies can stimulate innovations that may over-compensate for the costs of complying with these policies. This is known as the Porter hypothesis. While there is a broad empirical literature on the impact of trade on environment the empirical literature on the impact of environmental regulations on trade flows is relatively scarce, very heterogeneous and presents mixed results. The innovative feature of this paper is its attempts to estimate, in a gravity setting, augmented with a proxi of environmental stringency, the impact of three major Multilateral Environmental Agreements (MEAs) on 15 EU countries bilateral exports. According to our estimates, in the period 1988-2008, to be member of MEAs had a positive average impact on EU15 bilateral exports. This evidence can be partly explained by a possible trade diversion effect with respect to countries that did not sign MEAs, and a corresponding trade creation effect among members of the environmental agreements. Furthermore, evidence coming from interaction effects estimates seems to show that for exporting countries having signed the UNFCCC and the Montreal agreements, partly mitigates (by the amount of the estimated coefficient ) the negative impact of having a relatively more stringent environmental regulation on bilateral trade. This result could have important policy implications for the future international trade- environmental negotiations.
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  • 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.
    • Handle: RePEc:bla:worlde:v:35:y:2012:i:7:p:799-815
    DOI: j.1467-9701.2012.01450.x
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    1. R. De Santis & C. Jona Lasinio, 2016. "Environmental Policies, Innovation and Productivity in the EU," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 16(4), pages 615-635, December.
    2. Laurent Didier, 2018. "Do environmental provisions in regional trade agreements affect trade in services?," Economics Bulletin, AccessEcon, vol. 38(2), pages 733-750.
    3. Roberta DE SANTIS, 2012. "The Impact Of Growth On Biodiversity: An Empirical Assessment," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 283-290.
    4. Jean-Louis Combes & Pascale Combes Motel & Somlanaré Romuald Kinda, 2014. "Do Environmental Policies Hurt Trade Performance?," CERDI Working papers halshs-00939249, HAL.
    5. Hafele, Jakob & Kuhls, Sonia, 2022. "Trade-off or tension: Can carbon be priced without risking economic competitiveness?," ZOE Discussion Papers 9, ZOE. institute for future-fit economies, Bonn.
    6. Caporale, Guglielmo Maria & De Santis, Roberta & Girardi, Alessandro, 2015. "Trade intensity and output synchronisation: On the endogeneity properties of EMU," Journal of Financial Stability, Elsevier, vol. 16(C), pages 154-163.
    7. Sung Jin Kang & Sun Lee & Seon Ju Lee, 2021. "Impacts of Environmental Agreements on Bilateral Trade of Climate Industry," Energies, MDPI, vol. 14(21), pages 1-17, November.
    8. Martínez-Zarzoso, Inmaculada & Bengochea-Morancho, Aurelia & Morales-Lage, Rafael, 2019. "Does environmental policy stringency foster innovation and productivity in OECD countries?," Energy Policy, Elsevier, vol. 134(C).
    9. Ederington, Josh & Paraschiv, Mihai & Zanardi, Maurizio, 2022. "The short and long-run effects of international environmental agreements on trade," Journal of International Economics, Elsevier, vol. 139(C).
    10. Thu Hien Le & Huu Kien Nguyen & Thanh-Vu-Linh Nguyen & Thi-Mai-Huong Khuat & Thi-Phong-Thu Pham & Thuong-Lang Nguyen, 2022. "Impact of Green Logistics on International Trade: An Empirical Study in Asia Pacific Economic Cooperation," International Journal of Economics and Financial Issues, Econjournals, vol. 12(4), pages 97-105, July.
    11. Cavalletti, Barbara & Borino, Floriana, 2015. "The Challenge of Analysing the Impact of Environmental Policy on Competitiveness - L’analisi dell’impatto della politica ambientale sulla competitività: una sfida ancora aperta," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(2), pages 153-171.
    12. Bellelli, Francesco S. & Xu, Ankai, 2022. "How do environmental policies affect green innovation and trade? Evidence from the WTO Environmental Database (EDB)," WTO Staff Working Papers ERSD-2022-3, World Trade Organization (WTO), Economic Research and Statistics Division.
    13. de santis, roberta, 2012. "Trade, FDI, growth and biodiversity: an empirical analysis for the main OECD countries," MPRA Paper 37730, University Library of Munich, Germany.
    14. Teemu Makkonen & Sari Repka, 2016. "The innovation inducement impact of environmental regulations on maritime transport: a literature review," International Journal of Innovation and Sustainable Development, Inderscience Enterprises Ltd, vol. 10(1), pages 69-86.
    15. 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.
    16. Jeremiás Máté Balogh & Giovanna Maria Borges Aguiar, 2022. "Determinants of Latin American and the Caribbean agricultural trade: A gravity model approach," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(4), pages 127-136.

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    • F18 - International Economics - - Trade - - - Trade and Environment

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