Environmental Policy and Trade of Manufacturing Goods in the Central and Eastern Enlargement of the European Union

We investigate empirically the link between environmental policy and trade with particular reference to the single market and enlargement. Incorporating the methodology of endogenous protection, we question if countries should wish to weaken their environmental policies in response to more trade integration; in particular, we look at the effect of harmonizing product regulations and the level of imports. The empirical answer suggests that harmonizing product regulations leads to more trade; domestic environmental regulations have a larger negative effect on trade when they are treated as endogenous; and EU countries relax domestic environmental regulations due to the harmonization of regulations, whereas the Central and Eastern European countries that joined or will join the European Union set more stringent environmental regulations.