Do Environmental Regulations Increase Bilateral Trade Flows?

Tsurumi, Tetsuya and Managi, Shunsuke and Hibiki, Akira (2015): Do Environmental Regulations Increase Bilateral Trade Flows? Forthcoming in: The B.E. Journal of Economic Analysis and Policy

Abstract

The argument that stringent environmental regulations are generally thought to harm export flows is crucial when determining policy recommendations related to environmental preservation and international competitiveness. By using bilateral trade data, we examine the relationships between trade flows and various environmental stringency indices. Previous studies have used energy intensity, abatement cost intensity, and survey indices for regulations as proxies for the strictness of environmental policy. However, they have overlooked the indirect effect of environmental regulations on trade flows. If the strong version of the Porter hypothesis is confirmed, we need to consider the effect of environmental regulation on GDP, because GDP induced by environmental regulation affects trade flows. The present study clarifies the effects of regulation on trade flows by distinguishing between the indirect and direct effects. Our results indicate an observed non-negligible indirect effect of regulation, implying that the overall effect of appropriate regulation benefits trade flows.

• Item Type: MPRA Paper
• Language: English
• Keywords: Environmental regulations, Porter hypothesis, Trade and environment, Gravity model
• Subjects: F - International Economics > F1 - Trade > F18 - Trade and Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q59 - Other

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