Trade and Environmental Regulations

Abstract

To what extent do environmental regulations affect trade flows? Early cross-sectional studies of the relationship generally found little effect. More recent research that controls for industry heterogeneity, the endogeneity of trade policy, and the type of trade and industry has found sizeable, statistically significant effects of environmental regulations on trade. There is little evidence, however, that production of ‘dirty’ goods has shifted to countries with lax environmental standards.