Do environmental provisions in trade agreements make exports from developing countries greener?

Abstract

Abstract Environmental provisions in preferential trade agreements (PTAs) are increasing in terms of their number and variety. The economic effects of these environmental provisions remain largely unclear. It is, therefore, necessary to determine whether the trend to incorporate environmental provisions in PTAs counteracts the goal to spur economic development through trade via these PTAs. This is the first article in which the trade effects of environmental provisions in PTAs are thoroughly investigated. The spotlight is put on developing countries for which the assumed trade-off between economic development and environmental protection is particularly acute. This article buses a new fine-grained dataset on a broad range of environmental provisions in 680 PTAs, combined with a panel of worldwide bilateral trade flows from 1984 to 2016. We show that environmental provisions can help reduce dirty exports and increase green exports from developing countries. This effect is particularly pronounced in developing countries with stringent environmental regulations. By investigating how environmental provisions in PTAs affect trade flows, this article contributes to the literature on the following topics: international trade and the environment; design and impacts of trade agreements; and greening the economy in developing countries. It also shows that the design of trade agreements matters. Environmental provisions can be used as targeted policy tools to promote the green transformation and to leverage synergies between the economic and environmental effects of including environmental provisions in trade agreements.