Is the road to regional integration paved with pollution convergence?

This paper evaluates the impact of free trade agreements (FTAs) on carbon dioxide emissions convergence for a cross-section of 182 countries over the period 1980 to 2008, paying particular attention to Mediterranean and European Union countries. In order to overcome the endogeneity problem of the FTA variable, a propensity score matching approach is first used to match country pairs. Next the convergence properties of relative CO2 emissions are examined for the whole panel and for the matched sample using difference-in-difference techniques. The main results indicate that CO2 emissions of the pairs of countries that belong to an FTA tend to converge, and do so at a higher rate for more advanced integration agreements. In particular, we find that emissions converge more rapidly for NAFTA and EU-27 countries than for Euro-Med countries.