Environmental policy and trade of manufacturing goods in Central and Eastern Enlargement of the European Union

We empirically investigate the link between environmental policy and trade with particular reference to the Single market and enlargement. We incorporate the methodology of endogenous protection, and question whether countries may wish to weaken their environmental policies as a response to more trade integration; in particular, we look at the impact of harmonization of product regulations and the level of imports. The empirical answer suggests that indeed (1) harmonization of product regulations lead to more trade; (2) domestic environmental regulations have a larger negative effect on trade when they are treated as endogenous; and (3) EU countries relax domestic environmental regulations due to the harmonization of regulations while those acceding countries that have been more advanced in joining the EU (Central Eastern European countries) set more stringent environmental regulations.