A Research On The Interactive Mechanism Of Environmental Quality, Environmental Regulation And South-North Trade

In the context of globalization, the growing impact of environmental regulation and environmental pollution on international trade, and thus how to resolve the conflict between environment and trade and how to interpret the relationship between environmental regulation and international trade have been a hot topic. This paper taking the theme of environment and trade, provides in-depth analysis of the environmental effects of international trade, the mechanism explaining environmental regulation and international trade and the interactive relationship between environmental quality, environmental regulation and international trade. With the data of bilateral trade among old and new EU member states in panel data structure, this paper not only developes quantitative analysis and riches the economic theory, but also provides empirical evidences and experiences for China to choose a better way of eco-friendly economic development.After reviewing previous literatures on the relationship between the environment and trade, the author developed her own research ideas. Based on a framework of general equilibrium model, this paper proves the machenism and effect of trade on environmental quality, as well as provides a theoretical framework and specific empirical methodology. For the empirics, using the bilateral trade data between 27 EU member states and environmental quality data from 2000 to 2010 grouping by new and old member states, this paper considers the positive effect of foreign direct investment on technology, and estimates the scale effect, structure effect and technical effects of the international trade on environmental quality. The result is that the positive effect of technology is to promote the improvement of environmental quality in the long run, and it is stronger in developed countries than in developing countries; besides, economies of scale and structure effects, especially the former, play a major role for the pollution caused by the emission.Then, the paper studies the impact of environmental regulation on international trade, with an extended trade gravity model applied with empirical data, to verify the "pollution haven" hypothesis, that strict environmental regulations will have a negative impact on bilateral trade. Further, in order to solve the problem of endogeneity of environmental regulations and to study the relationship and the dynamic effects among environmental quality, environmental regulations and international trade, with the help of a panel vector autoregression econometric model, the paper had used different methods including the panel unit root test, model parameters estimation, impulse response functions and variance decomposition analysis to do the empirical analysis and found the asymmetrical relationship among environmental quality, environmental regulations and international trade, with the dynamic effects of each variables on each other from short-and long-term perspective studied.The conclusion is that, in the short term, the government tends to develop punitive environmental regulations against heavily-polluting enterprises; such approach, on one hand, can be very effective in reducing emissions of environmental pollutants, on the other hand, will have a direct trade negative effects. However, as time goes, this inhibition on trade will gradually be offset until it becomes one of the driving forces compelling industrial upgrading, and in the long term, environmental regulation could ultimately improve environmental quality through technical effects.