Free Trade Agreements and Environment for Sustainable Development: A Gravity Model Analysis

Free trade agreements (FTAs) have a key role in the global value chain. In the meantime, these are also disturbing the environmental balance of the world. The objective of this study is to check whether the trade is good or bad for the environments of countries that are bonded by trade agreements. This study examines the impact of FTAs on bilateral carbon emissions within the gravity framework. We find a positive impact of FTA agreements on bilateral CO2 pollution. However, in an income-based country group analysis, we find mixed evidence regarding FTAs. The analysis concerning high income countries indicates that free trade agreements are beneficial for high income countries, while, in the case of upper middle income and lower middle income countries, we find that the free trade agreements are not beneficial for their environments. These results of the effects of FTAs on bilateral CO2 pollution imply that low income countries have a greater pollution effect even after the implementation of an FTA due to lenient environmental standards. There is a need for developing countries to learn from high income countries, as their FTAs are beneficial for decreasing pollution.