Causality between environmental regulation and trade in Korea: Dynamic panel approach
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This article investigates the relationships between environmental regulation and trade flow by performing a dynamic panel causality analysis using heterogeneous and non-stationary cointegrated panel data for the manufacturing sector in Korea over the period 1993-2009. Empirical results confirm that there is no short-term bidirectional feedback mechanism between export performance and environmental regulation, although export performance responds to a deviation from the long-run equilibrium in the previous period. These results reveal that short-term adjustments to long-term equilibrium are primarily determined through the long-term export performance and environmental regulation relationship, which suggests that reliable long-run environmental regulation elasticity estimates of export are important inputs in the development of a good environmental policy.
Abstract
This article investigates the relationships between environmental regulation and trade flow by performing a dynamic panel causality analysis using heterogeneous and non-stationary cointegrated panel data for the manufacturing sector in Korea over the period 1993-2009. Empirical results confirm that there is no short-term bidirectional feedback mechanism between export performance and environmental regulation, although export performance responds to a deviation from the long-run equilibrium in the previous period. These results reveal that short-term adjustments to long-term equilibrium are primarily determined through the long-term export performance and environmental regulation relationship, which suggests that reliable long-run environmental regulation elasticity estimates of export are important inputs in the development of a good environmental policy.
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