27 May 2011

Impact of Environmental Regulations on Trade in the Main EU Countries: Conflict or synergy?

Roberta De Santis

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While there is a broad empirical literature on the impact of trade on environment, the literature on the impact of environmental regulations on trade flows is relatively scarce, very heterogeneous and presents mixed results. The innovative feature of this paper is its attempt to estimate, in a gravity setting, the overall impact on 14 EU countries’ bilateral exports of three major Multilateral Environmental Agreements (MEAs).
According to the estimates arrived at in this paper, membership of MEAs in 1988-2008 had a positive impact on EU14 exports ranging between 22 and 35%. Furthermore, it seems that joint membership of WTO/EU and MEAs had a further positive ‘interaction effect’ on EU15 exports. These results show the presence of a synergy, at least for EU members, between environmental regulations and trade flows. It can be partly explained by a possible trade diversion effect with respect to countries that did not sign an MEA, and a corresponding trade-creation effect among members of the environmental agreements.
This explanation seems consistent with the fact that the relevance of the relationship between MEAs, EU and WTO rules for enhancing mutual supportiveness of environment and trade has been clearly reflected in the international negotiations over the past 20 years.