Environmental Standards and Trade Volume

This paper presents a theoretical and empirical analysis of the effects of environmental regulation on bilateral trade volume. We use a gravity model of trade flows and find weak evidence that differences in regulation are a source of comparative advantage. We also find evidence against the racetothebottom hypothesis in that increases in standards in both high and low standard countries increase bilateral trade volume. We use 1999 data on GDP, population, and environmental stringency for 39 countries.