The Short and Long-Run Effects of International Environmental Agreements on Trade

Ederington, Josh and Paraschiv, Mihai and Zanardi, Maurizio (2018) The Short and Long-Run Effects of International Environmental Agreements on Trade. Working Paper. Lancaster University, Department of Economics, Lancaster.

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Does the ratification of an international environmental agreement (IEA) reduce a country’s competitiveness on world markets? In this paper, we take a gravity regression approach to answering this question by using industry-level bilateral trade data and employing time-varying country fixed effects to control for the endogeneity of treaty participation. We find that ratifying an IEA has significant (albeit small) negative effects on the exports of a country’s median manufacturing industry as well as a compositional shift towards exporting cleaner goods. However, we also show that this negative competitive effect on the median manufacturing industry disappears in the long-run. In fact, the positive compositional shift becomes stronger in the long-run as a ratifying country sees a further decline in exports of dirtier industries which is more than compensated for by an increase in exports of cleaner industries, with an overall positive but negligible effect on employment.

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24 Jul 2018 13:28
Last Modified:
15 Jul 2024 07:59