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

19 Pages Posted: 28 Jan 2019

See all articles by Mehdi Nemati

Mehdi Nemati

University of California, Riverside (UCR)

Wuyang Hu

Ohio State University (OSU)

Michael R. Reed

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

Date Written: February 2019

Abstract

This study empirically examines the relationship between free trade agreements (FTAs) and greenhouse gas (GHG) emissions. For this purpose, we use three different FTAs: the Southern Common Market, the North American Free Trade Agreement, and the Australia–United States Free Trade Agreement. These FTAs are between developing, both developing and developed, and only developed countries, respectively. Panel unit root, panel cointegration, and fully modified ordinary least squares estimations are employed to examine the long‐run relationship between GHG emissions and trade liberalization. The results indicate that the environmental effects of FTAs depend on the different agreement types. When FTAs are between only developed or developing countries, overall there is no environmental damage, and these types of FTAs can be beneficial for the environmental quality in the long run. However, when developing and developed countries are in a trade agreement, overall environmental quality decreases due to increased GHG emissions.

Keywords: developed countries, developing countries, free trade agreements, greenhouse gas emissions, panel cointegration

Suggested Citation

Nemati, Mehdi and Hu, Wuyang and Reed, Michael R., Are Free Trade Agreements Good for the Environment? A Panel Data Analysis (February 2019). Review of Development Economics, Vol. 23, Issue 1, pp. 435-453, 2019, Available at SSRN: https://ssrn.com/abstract=3322795 or http://dx.doi.org/10.1111/rode.12554

Mehdi Nemati (Contact Author)

University of California, Riverside (UCR) ( email )

900 University Avenue
Riverside, CA 92521
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Wuyang Hu

Ohio State University (OSU)

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901 Woody Hayes Drive
Columbus, OH OH 43210
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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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