Measuring Economic Impacts of Environmental Policy Transitions Across Countries

This paper analyzes the macroeconomic effects of environmental policy transitions using stringency scores from developed and emerging countries. We examine the economic effects of environmental policy transitions across market-based, non-market-based, and technology support policies, along with their aggregate effect captured by the Environmental Policy Stringency index. To assess the economic effects relative to a no-transition scenario, we apply the synthetic control estimation method to construct separate counterfactuals for each treated country and policy category. Our framework standardizes the selection of treatment countries, event years, predictor variables, and donor pools, and incorporates placebo tests to assess the significance of total economic losses. We find that most policy transitions are associated with short-term economic losses, particularly for non-market-based and technology support policies. Placebo tests reveal that technology support transitions generate the largest and most significant losses, while aggregated environmental policy transitions generate smaller but still significant losses. In contrast, market-based and non-market-based policies do not show significant economic effects. These findings highlight the heterogeneous economic responses to environmental policy transitions and demonstrate that, although short-term losses can be substantial, more stringent market-based and non-market-based policies do not inherently constrain long-term economic performance.