Environmental Regulation and Competitiveness: Evidence from Romania

Abstract

Stricter environmental regulations may increase costs and thereby may lead to a loss of competitiveness which implies a decline in exports, increase in imports and in the long term a shift of pollution intensive industries from countries with stringent regulations towards those with less strict ones. This paper estimates a gravity model to establish whether the implementation of more stringent regulations in Romania in accordance with the environmental aquis has indeed affected its competitiveness and decreased exports towards its European trading partners. Our findings do not provide empirical support to this hypothesis, i.e. environmental stringency is not found to affect significantly either trade or its components.