Trade Flow Consequences of the European Union’s Regionalization of Environmental Regulations

47 Pages Posted: 3 Jun 2009 Last revised: 23 Apr 2012

See all articles by Patrick A. McLaughlin

Patrick A. McLaughlin

Mercatus Center at George Mason University

Bentley Coffey

Clemson University

Date Written: December 9, 2010

Abstract

We show that multilateral environmental regulations may affect trade flows differently than unilaterally generated regulations. Using the gravity equation, we test the effect on bilateral trade flows of increases in environmental regulation stringency ratings, taken from survey data, with a panel of 97 countries, controlling for European Union (EU) membership. We find significant differences in the effects on intra-EU exports compared to trade involving at least one non-EU country. We also find differing effects for high income countries compared to low income countries. An increase in environmental regulation stringency leads to a dramatic decrease in intra-EU exports originating in low income countries. Conversely, a similar change in environmental regulation stringency does not statistically affect intra-EU exports originating in high income countries. The results are consistent with the uneven competitiveness effect and the uneven burden of compliance shown in our model.

Keywords: international trade, gravity equation, regional regulations, environmental regulations, European Union regulations, environment and trade

JEL Classification: F18, L51, Q56

Suggested Citation

McLaughlin, Patrick A. and Coffey, Bentley, Trade Flow Consequences of the European Union’s Regionalization of Environmental Regulations (December 9, 2010). Available at SSRN: https://ssrn.com/abstract=1413834 or http://dx.doi.org/10.2139/ssrn.1413834

Patrick A. McLaughlin (Contact Author)

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
(703) 993-9670 (Phone)

HOME PAGE: http://www.patrickamclaughlin.com

Bentley Coffey

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

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