Do Environmental Regulations Increase Bilateral Trade Flows?

Tetsuya Tsurumi, Shunsuke Managi, Akira Hibiki

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)1549-1577
Number of pages29
JournalB.E. Journal of Economic Analysis and Policy
Volume15
Issue number4
DOIs
Publication statusPublished - 2015 Oct 1

Keywords

  • Porter hypothesis
  • environmental regulations
  • gravity model
  • trade and environment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

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