Visiting Fellow Program: COVID-19 Pandemic and Impact of Environmental Regulations on Pollutive Industrial Trade: CAREC vs. OECD Regions

The CAREC Institute Visiting Fellow 2021 Saleem Irfan examined the impact of environmental regulations on trade competitiveness for CAREC countries and their bilateral export flows with environmentally stringent OECD countries in the wake of the COVID-19 pandemic. This research finds some vivid evidence of the CAREC region becoming a pollution haven for most pollutive exports to OECD countries. According to the study, the effects of environmental regulations on the pollutive industrial trade of the CAREC region are sensitive to the choice of industry and empirical methods used. Most CAREC countries have enjoyed export competitiveness in most pollutive industries during the entire study period. The author suggests that environmental policy designed to achieve social benefits with industrial trade competitiveness is carefully weighted to incorporate more disaggregated level sector impact by bringing in the diversity of measurements needed for each pollutive industrial sector rather than framing the policy on the belief that “one size fits all.”

The findings also suggest that the COVID-19 pandemic resulted in the volatility of export competitiveness in most pollutive and less pollutive sectors for the CAREC region. During the pandemic period, some countries of the CAREC region with a narrow-base / less diversified and natural resource-based export have witnessed competitiveness shocks and loss of export competitiveness while others with more diversified export-base suffered less. Therefore, the study recommends adopting mutually supportive trade and environmental policies which promote and expand diversified, sustainable production and export competitiveness at the sectoral level in the CAREC region. The study recommends the CAREC region to ensure that the 2030 sustainable development agenda aligns the ambitious environmental regulations compliance targets with greener industrial production and trade.