Assessing factors driving international trade in natural resources 1995–2018

Abstract

Natural resources are essential for economic growth. Understanding the factors driving flows of natural resources is crucial for the design of sustainable development pathways. This paper seeks to quantify such determinants in a unified framework of gravity model of trade with a focus on various policy measures. To do so, a list of resource goods is developed. With the comprehensive trade dataset covering all economies in the world over 1995–2018, different samples and estimators are employed. Several findings stand out. In baseline results with the whole sample, open trade policy is a key factor increasing resource exports by at least 24%, whereas a 10% improvement in resource efficiency lowers the exports by about 2%. It specifically provides some evidence regarding the role of environmental policy. A 10% increase in energy tax in the importing economy can drive resource imports by about 1.16%, and by 6.51% for the same increase in resource tax. This suggests the reallocation of resource extraction. The results can help policymakers better manage the trade-offs between economic growth, resource security and environmental consequences.