Trade, Environmental Regulations, and the World Trade Organization: New Empirical Evidence
30 Pages Posted: 20 Apr 2016
Date Written: July 7, 2004
Busse 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, the author performs a thorough empirical investigation of that linkage for 119 countries and five high-polluting industries. 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.
This paper is a product of the Trade Team, Development Research Group.
Keywords: Environmental Regulations, Trade, Comparative Advantage, WTO
JEL Classification: F18, L50, O13, Q28
Suggested Citation: Suggested Citation