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Environmental Stringency and International Trade: A Look Across the Globe
Summary
Researchers examined the relationship between environmental regulatory stringency and international trade across countries, testing whether stricter environmental regulations lead to shifts in the location of pollution-intensive industries. The analysis found mixed evidence for the pollution haven hypothesis.
The main goal of this paper is to analyze the impact of carbon pricing, as a means to reducing carbon dioxide (CO2) emissions, on international trade in goods using a pane dataset of OECD and other developing countries with data over the period 2007 to 2018.We use Poisson pseudomaximum likelihood regressions (PPML) with multi-dimensional fixed effects to estimate a gravity model of trade with panel data.To conduct our empirical analysis, we combine data on emissions from fuel combustion, which account for approximately 80 percent of global human-induced CO2 emissions and have been the main target of carbon pricing, with detailed international trade data using the HS 6-digit codes and information on the market-based policies applied by the countries over the sample period.Our findings confirm that, regardless of the environmental stringency variable used, pollution constraints have a significant impact on trade flows, with this effect being particularly pronounced in the most polluting industries.
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