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Do Environmental Regulations Increase Bilateral Trade Flows?

Do Environmental Regulations Increase Bilateral Trade Flows? 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 gross domestic product (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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Economic Analysis & Policy de Gruyter

Do Environmental Regulations Increase Bilateral Trade Flows?

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Publisher
de Gruyter
Copyright
Copyright © 2015 by the
ISSN
2194-6108
eISSN
1935-1682
DOI
10.1515/bejeap-2014-0164
Publisher site
See Article on Publisher Site

Abstract

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 gross domestic product (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.

Journal

The B.E. Journal of Economic Analysis & Policyde Gruyter

Published: Oct 1, 2015

References