EVALUATING THE INFLUENCE OF ENVIRONMENTAL REGULATIONS ON SUSTAINABLE TRADE PRACTICES (IN SELECTED OECD COUNTRIES)

Abstract

This research investigates the impact of environmental regulations and policies on green trade in selected OECD countries. Environmental regulations play a crucial role in shaping sustainable practices by imposing standards and requirements aimed at mitigating environmental impacts related to international trade. Through analyzing data in selected OECD countries, for a period of 20 years, covering the period 2000-2020, this study aims to explore the extent to which environmental regulation affects the trade in environmental goods, also called ‘green trade’. The data were analyzed by using two pooled Ordinary Least Squares models for the selected OECD countries included in the analysis, the first model testing the effects that the environmental policies would have on the environmental goods exports, while the second model testing the effect that environmental policies would have on environmental goods import. Implementing environmental policies and regulations, and raising awareness about the importance of taking action to protect our environment touches different areas, including trade behavior, by moving ‘dirty industries’ to developing countries, restricting harmful activities, encouraging friendly practices, and increasing the share of ‘green exports’. Imposing such requirements creates a new market that demands environmental goods and services that come at a very low cost of the environment, this demand sparks innovation in environmental-related technologies so that companies can remain competitive.
The result of this analysis indicates that a 1 unit increase in the environmental policy stringency, increases environmental-related goods exports by 0.73 percentage points and imports by 0.38 percentage points, meaning that as countries strengthen their environmental policies, it impacts the share of exports and imports of environmental-related goods positively, as they tend to increase. As the demand for these new types of ‘green products’ increases, the countries are pressured to innovate and shift production towards more environmentally friendly goods and products. Since not all countries have the capability to innovate, there is an increase in the exports and imports of environmental-related goods, due to countries aiming to achieve certain sustainable development goals. The results also indicate that while innovation in environmental-related technologies increases exports by 0.58 percentage points it decreases imports by 0.21 percentage points, meaning that as countries progress and come up with new environmental-related technologies that will be used to produce environmental-related goods, they tend to increase their exports, and since they can produce such goods domestically, they become less dependent on such imports from other countries.