Green Consumption and Corporate Environmental Responsibility in North-South Trade

As consumers become more environment-conscious, firms enhance their corporate environ- mental responsibility (CER) practices, such as adopting greener technologies, producing environment- friendly goods (i.e., CER goods) and capturing the price premium associated with environmental quality. Existing studies on the CER goods market adopt a closed-economy framework because CER verification and certification have traditionally been conducted locally. However, as CER certification becomes globally accessible, it is crucial to examine how firms from different countries compete in the CER goods market. We apply a North-South trade model to analyze the effects of stricter CER standards, trade liberalization, and stronger environmental awareness on firms’ CER adoption decisions under two scenarios: CER is recognized only in the North, and CER is recognized in both North and South. Our findings indicate that both stricter CER standards and greater environmental awareness encourage firms to adopt CER, regardless of the scope of CER recognition. In contrast, the impact of trade liberalization depends on whether CER is recognized in the South. When CER is recognized only in the North, trade liberalization promotes CER adoption. However, when it is recognized in both North and South, trade liberalization discourages CER adoption.