Environmental regulation impacts on international trade: aggregate and sectoral analyses with a bilateral trade flow model

An important barrier to the implementation of strict environmental regulations is that they are perceived to negatively affect a country's competitiveness, visible through changes in international trade. Whereas theoretical analyses of trade and the environment indicate that relatively strict environmental policies can have a strong impact on foreign trade, empirical studies present mixed results. This article presents new empirical results that tie together two previous studies employing a multicountry econometric framework, notably Tobey [1,2] and van Beers and van den Bergh [3]. Such a link is useful since most empirical studies on trade and environment use unique assumptions and models, thus making a comparison of findings difficult. Since Tobey's study has been particularly influential on writings in this area, a statistical analysis has been performed using a data set that shares many characteristics with his study. The main improvement in the approach adopted here is the use of bilateral instead of multilateral data and analyses of aggregate as well as sector level data. The aggregate results for 1975 support Tobey's findings, namely that no significant impact on international trade is caused by stricter national environmental policies. The results for 1992 do not demonstrate a significant impact either. Finally, new sector level results for 1992 show some interesting similarities with those of Tobey's.