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Trade, environmental regulations and the World Trade Organization : new empirical evidence

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  • Busse, Matthias

Abstract

The paper empirically explores the linkages between environmental regulations and international trade flows. So far, empirical studies either have failed to find any close statistical relationship or have delivered questionable results due to data limitations. Using a comprehensive new database for environmental regulations across countries, a thorough empirical investigation of that linkage for 119 countries and five high-polluting industries is performed. No evidence is found to support the pollution hypothesis that industries facing above-average abatement costs with environmental regulations would prefer pollution havens and relocate their activities. The exception is iron and steel products, where a negative and statistically significant link is established, implying that higher compliance with international treaties and conventions and more stringent regulations are associated with reduced net exports. High-income countries, where environmental regulations are usually more stringent in comparison to middle or low income countries, have experienced a considerable decline in the export-import ratio of iron and steel products since the late 1970s. There is no clear evidence that national governments choose sub-optimal policies that result in insufficient regulations, so the case for environmental standards within the WTO framework is relatively weak.

Suggested Citation

  • Busse, Matthias, 2004. "Trade, environmental regulations and the World Trade Organization : new empirical evidence," Policy Research Working Paper Series 3361, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3361
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    References listed on IDEAS

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    Cited by:

    1. Babool, Md. Ashfaqul Islam & Reed, Michael R., 2005. "International Competitiveness and Environmental Regulations," 2005 Annual meeting, July 24-27, Providence, RI 19496, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Colin Kirkpatrick & Kenichi Shimamoto, 2008. "The effect of environmental regulation on the locational choice of Japanese foreign direct investment," Applied Economics, Taylor & Francis Journals, vol. 40(11), pages 1399-1409.
    3. Zhang, Kun & Zhang, Zong-Yong & Liang, Qiao-Mei, 2017. "An empirical analysis of the green paradox in China: From the perspective of fiscal decentralization," Energy Policy, Elsevier, vol. 103(C), pages 203-211.
    4. Azam, Sardor, 2016. "Trade and Environment: Do Spatial Effects Matter?," MPRA Paper 73113, University Library of Munich, Germany, revised Jun 2016.
    5. Medalla, Erlinda M. & Lazaro, Dorothea C., 2005. "Does Trade Lead to a Race to the Bottom in Environmental Standards? Another Look at the Issues," Discussion Papers DP 2005-23, Philippine Institute for Development Studies.
    6. Yang Lu, 2010. "Do environmental regulations influence the competitiveness of pollution-intensive products?," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(2), pages 276-298, June.

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