Environmental policy stringency distance and manufacturing trade

Abstract

This study analyses the impact of environmental policy stringency distance on manufacturing trade between OECD and non-OECD countries from 2000 to 2018. The study incorporates an EPS distance index in a gravity model and analyses it through Poisson Pseudo Maximum Likelihood regression. The results show that higher EPS distance is associated with lower manufacturing trade flows. The decline in trade flows is stronger among the OECD countries and is more pronounced in analyses of relatively recent periods. Sectoral analyses show that industries with a high environmental impact, such as chemicals, metals, and machinery, are particularly affected by EPS distance, resulting in a decrease in trade flows. The study highlights the importance of harmonizing environmental policies to reduce trade barriers and support sustainable development. It also identifies differential impacts of environmental regulations across different manufacturing sectors and economic groups. The finding suggests that coordinated efforts in international policy are needed to promote smoother and more efficient global trade.