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
Date Written: July 31, 2016
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: Suggested Citation