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Are Free Trade Agreements Good for the Environment? A Panel Data Analysis

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  • Nemati, Mehdi
  • Hu, Wuyang
  • Reed, Michael

Abstract

This study attempts to empirically re-examine the relationship between free trade agreements (FTAs) and greenhouse gas (GHG) emissions. For this aim, we chose three different free trade agreements: Southern Common Market (MERCOSUR), North American Free Trade Agreement (NAFTA), and the Australia-United States Free Trade Agreement (AUSFTA). These FTAs are between developing countries, developed and developing countries, and only developed countries, respectively. Panel unit root, panel cointegration, and fully modified OLS (FMOLS) estimators are employed to find the longrun relationship between GHG emission, trade liberalization, and other economic factors. The results indicate that the environmental effect of a free trade agreement depends on the agreement type. When the agreement is among only developed or only developing countries, there is no environmental damage to the world and these types of FTAs can be beneficial for the world environment. However, when developing and developed countries are in the agreement, world GHG emissions increase.

Suggested Citation

  • Nemati, Mehdi & Hu, Wuyang & Reed, Michael, 2016. "Are Free Trade Agreements Good for the Environment? A Panel Data Analysis," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235631, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235631
    DOI: 10.22004/ag.econ.235631
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    7. Sorgho, Zakaria & Tharakan, Joe, 2022. "Do PTAs with environmental provisions reduce GHG emissions? Distinguishing the effectiveness of climate-related provisions," LIDAM Discussion Papers CORE 2022012, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Qi Meng & Muhammad Mohiuddin & Yuliang Cao, 2022. "Sustainable Production Clauses and Positioning in the Global Value Chain: An Analysis of International Investment Agreements (IIA) of the ICT Industry in Developing and Developed Markets," Sustainability, MDPI, vol. 14(4), pages 1-17, February.
    9. Yan, Xiaolei & He, Taiyi & Qian, Pengcheng & Liu, Zhongwen, 2024. "Does the construction of Pilot Free Trade Zones promote the development of green economy? - A quasi-natural experiment evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 208-224.
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    Environmental Economics and Policy; International Relations/Trade;

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