Is Environmental Policy a Secondary Trade Barrier? An Empirical Analysis
20 Pages Posted: 15 Aug 2001
Date Written: May 2001
Should international trade agreements be extended to include negotiations over environmental policy? The answer depends on whether countries distort levels of environmental regulations as a secondary means of providing protection to domestic industries; our results suggest that they do. Previous studies of this relationship have treated the level of environmental regulation as exogenous, and found a negligible correlation between environmental regulation and trade flows. In contrast, we find that, when the level of environmental regulation is modeled as an endogenous variable, its estimated effect on trade flows is significantly higher than previously reported.
JEL Classification: F13
Suggested Citation: Suggested Citation