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Product quality and sustainability: The effect of international environmental agreements on bilateral trade

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  • Stefan Borsky
  • Andrea Leiter
  • Michael Pfaffermayr

Abstract

This paper addresses the impact of sustainability in production on international trade. In particular, it examines the effect of the International Tropical Timber Agreement (ITTA) on tropical timber trade. The empirical analysis is based on a gravity equation in a difference‐in‐difference setting, which is estimated by a panel Heckman's selection model. This accounts for the potentially systematic selection of trading partners into timber trade activity. We then conduct a comprehensive comparative static analysis solving the structural gravity model with and without the ITTA. This allows us to determine the trade impact of an ITTA‐induced increase in sustainability for participating as well as for third countries. We find that countries participating in the ITTA exhibit a significant and substantial increase in trade values ranging from 4% to 6%. Furthermore, we observe that this effect is more pronounced for smaller member countries. Non‐ITTA countries are confronted with reduced values of tropical timber trade flows.

Suggested Citation

  • Stefan Borsky & Andrea Leiter & Michael Pfaffermayr, 2018. "Product quality and sustainability: The effect of international environmental agreements on bilateral trade," The World Economy, Wiley Blackwell, vol. 41(11), pages 3098-3129, November.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:11:p:3098-3129
    DOI: 10.1111/twec.12718
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    Cited by:

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    3. Zhijie Guan & Yue Zhang & Ip Ping Sheong Jim Kwee Fat, 2021. "Trade Relations Between Mauritius and China: A Gravity Model Approach," SAGE Open, , vol. 11(4), pages 21582440211, November.

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    More about this item

    JEL classification:

    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

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