The Impact of Environmental Stringency on Exports of Environmental Goods: Case Study of Pakistan

Abstract

The rising concern about environmental pollution has led to a rapid increase in global supply and demand for environmental goods. According to Porter’s Hypothesis, stringent environmental policies enable the domestic and global import demand for environmental goods. This study is an attempt to investigate the impact of environmental policy stringency on Pakistan’s environmental goods export. The gravity model has been utilized in this study to estimate the impact of environmental stringency on Pakistan’s environmental goods export. The regression analysis in this study consists of panel data, covering 32 cross-sectional observations (countries) and 14 time series observations (years). The results of a regression analysis using the feasible generalized least square methodology suggest that Porter’s Hypothesis is partially validated in Pakistan’s case, where domestic environmental stringency cripples and foreign environmental stringency stimulates country’s environmental goods export. Binding commitments of importing countries towards Kyoto Protocol hamper Pakistan’s environmental goods exports. This study also highlights Pakistan’s current export potential of environmental goods. The revealed comparative advantage index and 4-product-lines classification in 2021 shows that total of 78 products are designated as emerging product lines. The right set of environmental policies can help to achieve a comparative advantage in emerging environmental goods; thus, Pakistan’s environmental policies need to be articulated in a manner that can support the country’s environmental goods and services sector.