Assessing the impact of trade policies on environmental outcomes and welfare (project)

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Assessing the impact of trade policies on environmental outcomes and welfare

Client/Funding Institution

Anniversary Fund of the Oesterreichische Nationalbank

Abstract

The research aims to comprehensively examine how various trade policy measures including environmental regulatory non-tariff measures (NTMs), sanctions and environmental technologies affect greenhouse gas (GHG) and CO2 emissions. Unlike previous studies primarily focused on tariffs or carbon pricing, this research distinguishes (in addition to tariffs) between different policy instruments, notably, regulatory NTMs (such as technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) standards) as well as sanctions. These measures are often implemented to address market failures in environmental and health protections and have not been fully integrated into general equilibrium (GE) models yet. The project is structured around three interlinked work packages (WPs). WP1 estimates the effects of NTMs and sanctions on trade flows using a structural gravity model at a highly detailed six-digit product level. This approach generates elasticities for product- and sector-specific trade-cost shocks resulting from changes in trade policy measures. WP2 explores the direct relationship between regulatory NTMs and emissions at the sector-country level, accounting for patents as a proxy for technical progress. Potential endogeneity of these policies is addressed through an exogenous instrumental variable strategy. WP3 integrates the findings into a multi-sector GE framework to assess the joint impacts of changes in trade costs via the trade policy measures analysed and technological efficiency gains on both welfare and emissions. By combining partial and GE approaches, the research extends the existing literature and provides a more nuanced analysis of how trade policy can serve environmental goals. Ultimately, the project seeks to inform better policy design by revealing the complex interactions between trade, regulation, technology and emissions.

Funded by the Anniversary Fund of the Oesterreichische Nationalbank (Project No. 19146).