Degree of environmental stringency and the impact on trade patterns

Purpose To construct an index (index of environmental sensitivity performance) to be used in a cross‐country trade model in order to analyze the effect of various degrees of environmental stringency on the trade patterns, and especially on the export performance of the countries. Design/methodology/approach The gravity model of trade is used in order to find the effects of environmental stringency on the variation in trade flows. Findings The study shows that environmental stringency has an important impact on the export of the countries. The impact of the degree of environmental stringency on the exports is significantly negative suggesting an inverse relationship between export values and relative environmental sensitivity performance of the nations. Originality/value This study supports the argument that the environmental stringency level differential between developing and developed nations is a crucial criteria in terms of explaining shifts in the trade patterns and international specialization of the countries.