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The Short and Long-Run Effects of International Environmental Agreements on Trade

Josh Ederington, Mihai Paraschiv () and Maurizio Zanardi ()

No 242514732, Working Papers from Lancaster University Management School, Economics Department

Abstract: Does the ratification of an international environmental agreement (IEA) reduce a country’s competitiveness on world markets? In this paper, we take a gravity regression approach to answering this question by using industry-level bilateral trade data and employing time-varying country fixed effects to control for the endogeneity of treaty participation. We find that ratifying an IEA has significant (albeit small) negative effects on the exports of a country’s median manufacturing industry as well as a compositional shift towards exporting cleaner goods. However, we also show that this negative competitive effect on the median manufacturing industry disappears in the long-run. In fact, the positive compositional shift becomes stronger in the long-run as a ratifying country sees a further decline in exports of dirtier industries which is more than compensated for by an increase in exports of cleaner industries, with an overall positive but negligible effect on employment.

Keywords: international environmental agreements; trade flows; gravity equation (search for similar items in EconPapers)
JEL-codes: F14 F18 F53 F61 Q56 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-res
Date: 2018
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