Do Climate Mitigation Efforts Hurt Trade Performance?
Abstract
This article provides new evidence on the effect of a difference in climate policy
between trading partners on their bilateral trade flow for a sample of developed and
developing countries over the 1980-2010 period. It innovates in two aspects. First, while
previous studies have used partial measures of climate regulation, we estimate a measure
of performance of a country’s domestic efforts for climate mitigation. This measure
is the difference between observed CO2 emissions levels and “structural” emissions,
i.e. the emissions predicted by the determinants of environmental degradation as
identified and modelled in the literature. Second, the effect of these efforts on bilateral
trade flows is assessed using a gravity model. A difference in domestic efforts between
trading partners has no effect on aggregate trade flows. Put differently, weak domestic
efforts do not imply comparative advantage. In addition, similarities in domestic efforts,
whether they are lax or stringent, are not shown to affect trade flows. These results are
not influenced by the goods’ characteristics (manufactured goods or raw materials) and
are robust for different estimators.