Premium
Do Environmental Regulations Influence Trade Patterns? Testing Old and New Trade Theories
Author(s) -
Cole Matthew A.,
Elliott Robert J. R.
Publication year - 2003
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/1467-9701.00567
Subject(s) - endogeneity , monopolistic competition , economics , context (archaeology) , international trade , international economics , trade barrier , free trade , liberalization , competition (biology) , microeconomics , econometrics , monopoly , ecology , market economy , paleontology , biology
The relationship between trade liberalisation and the environment has been the subject of a growing body of literature in recent years. One particular focus of attention has been whether environmental regulations are influencing patterns of international trade. This paper aims to examine this issue in the context of the Heckscher‐Ohlin‐Vanek (HOV) model of trade, but also in a ‘new’ trade model characterised by monopolistic competition and differentiated products. Our use of the HOV model improves upon a well cited study by Tobey (1990) in many ways, not least by allowing for the possible endogeneity of environmental regulations. We find no significant relationship between such regulations and ‘dirty’ net exports. The ‘new’ trade model explains the presence of both intra‐ and inter‐industry trade and we again allow for the possible endogeneity of regulations. We believe this to be the first study to assess the role of environmental regulations within a ‘new’ trade model, but also the first to allow for the endogeneity of regulations in a cross‐country model of trade. We find environmental regulations to be a statistically significant determinant of the share of inter‐industry trade (net trade) and we find this significance to increase when endogeneity is controlled for.