Three Essays on International Trade and the Environment

Abstract

This dissertation is comprised of three empirical essays on linkage between international trade and the environment. The first essay is about currency exchange rate effects on economic growth and environment through energy consumption and pollution intensive industries trade. The main purpose of this paper is to investigate the impact of the USD exchange rate on real GDP and the CO2 emissions in the United States. The analysis is based on quarterly country-level data on the real trade weighted US dollar index, petroleum consumption, renewable energy consumption, net imports of pollution intensive products, real GDP and CO2 emissions from 1989 to 2015. The result of the Structural Vector Autoregressive (SVAR) model shows that the USD exchange rate is positively related to petroleum consumption, net imports by the United States with major U.S. trading partners in pollution intensive industries, real GDP and CO2 emissions. However, the exchange rate does not have a contemporaneous effect on renewable energy consumption. Moreover, petroleum consumption increases real GDP and domestic CO2 emission levels, while net imports of pollution intensive products decrease real GDP and do not significantly affect CO2 emissions. The second essay is about the effects of stringency of environmental regulations on international trade among OECD member countries. I estimate a gravity equation for bilateral trade with the Heckman two-step model to investigate the impacts of the relative stringency of environmental regulations on bilateral trade flows of energy-intensive commodities and less energy-intensive commodities. Estimated results show that relative difference of environmental regulatory stringency between trading partners has a significant influence on trade flows of energy-intensive commodities, but not on those of less energy-intensive commodities. In addition, we also found that countries import more energy-intensive products from trading partners when the partners’ environmental regulations become weaker. In the final essay, I employ the nested Constant Elasticity of Substitution (CES) model of consumer utility and study how the GMO labeling standards in Korea and Japan affect the trade flows of soybeans and social welfare in these two countries over time. The results show that GMO labeling regulations have a larger impact on GM soybean imports in the short run but, in the long run, the regulations have a greater impact on non-GM soybean imports. We also find that both consumers and producers in these two countries are better off due to the implementation of the GMO labeling regulations.