Raising the Cost of Doing Business in Lower Income Countries: Trade Agreements with Stringent Multilateral Environmental Regulations

49 Pages Posted: 18 Mar 2021

See all articles by Bentley Coffey

Bentley Coffey

Independent

William Hauk

University of South Carolina

Patrick A. McLaughlin

Mercatus Center at George Mason University

Date Written: March 17, 2021

Abstract

We explore how multilateral environmental regulations may adversely affect trade flows between countries with different incomes. Using the gravity equation, we examine the effect on bilateral trade flows of increases in environmental regulation stringency ratings, taken from survey data covering a panel of 137 countries. We test for significant differences in the effects of the stringency of environmental regulations on exports across countries’ income levels and EU membership. We show that an increase in environmental regulation stringency leads to a dramatic decrease in exports from poorer EU members; conversely, a similar change in environmental regulation does not appear to significantly affect the exports of richer EU members. The results are consistent with our theoretical model of the costs of multilateral environmental regulations, which are disproportionately borne by poorer countries due to both the uneven competitiveness effect and the uneven burden of compliance.

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

JEL Classification: F18, L51, Q56

Suggested Citation

Coffey, Bentley and Hauk, William and McLaughlin, Patrick A., Raising the Cost of Doing Business in Lower Income Countries: Trade Agreements with Stringent Multilateral Environmental Regulations (March 17, 2021). Available at SSRN: https://ssrn.com/abstract=3806762 or http://dx.doi.org/10.2139/ssrn.3806762

Bentley Coffey

Independent

William Hauk (Contact Author)

University of South Carolina ( email )

Department of Economics
1014 Greene St
Columbia, SC 29208
United States
+1-803-777-6044 (Phone)

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

Patrick A. McLaughlin

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

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