Are Free Trade Agreements Good for the Environment? A Panel Data Analysis

Prepared for Presentation at the Agricultural & Applied Economics Association and Western Agricultural Economics Association Annual Meeting, Boston, Massachusetts, July 31-August 2, 2016

35 Pages Posted: 15 Mar 2017

See all articles by Mehdi Nemati

Mehdi Nemati

University of California, Riverside (UCR)

Wuyang Hu

University of Kentucky

Michael R. Reed

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Date Written: July 31, 2016

Abstract

This study attempts to empirically re-examine the relationship between free trade agreements (FTAs) and greenhouse gas (GHG) emissions. For this aim, we chose three different free trade agreements: Southern Common Market (MERCOSUR), North American Free Trade Agreement (NAFTA), and the Australia-United States Free Trade Agreement (AUSFTA). These FTAs are between developing countries, developed and developing countries, and only developed countries, respectively. Panel unit root, panel cointegration, and fully modified OLS (FMOLS) estimators are employed to find the long-run relationship between GHG emission, trade liberalization, and other economic factors. The results indicate that the environmental effect of a free trade agreement depends on the agreement type. When the agreement is among only developed or only developing countries, there is no environmental damage to the world and these types of FTAs can be beneficial for the world environment. However, when developing and developed countries are in the agreement, world GHG emissions increase.

Keywords: Economic Factors, EKC, FTAs, GHG Emissions, Panel Cointegration

JEL Classification: F18, Q56

Suggested Citation

Nemati, Mehdi and Hu, Wuyang and Reed, Michael R., Are Free Trade Agreements Good for the Environment? A Panel Data Analysis (July 31, 2016). Prepared for Presentation at the Agricultural & Applied Economics Association and Western Agricultural Economics Association Annual Meeting, Boston, Massachusetts, July 31-August 2, 2016, Available at SSRN: https://ssrn.com/abstract=2932369 or http://dx.doi.org/10.2139/ssrn.2932369

Mehdi Nemati (Contact Author)

University of California, Riverside (UCR) ( email )

900 University Avenue
Riverside, CA 92521
United States

Wuyang Hu

University of Kentucky ( email )

Lexington, KY 40506
United States

Michael R. Reed

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

308 Charles E. Barnhart Bldg.
Lexington, KY 40546-0276
United States
859-257-7259 (Phone)
859-323-1913 (Fax)

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