Green productivity and bilateral trade flows in an augmented gravity model - A panel data analysis

Motivated by the debate in the trade liberalization and the environment literature, this article examines the effect of enhancing green productivity (GP) on bilateral trade flows. The uptake of per capita ISO14001 certification counts is used to measure GP. The existing literature provides other key determinants of bilateral trade flows. This article employs an augmented gravity model and presents panel data analysis on 26 countries from 1995-2004. Since GP is closely related to quality management, this article also examines the joint effect of the measure of quality management systems (QMS) and the measure of GP. Several fixed effects regression equations are estimated. The results support the hypothesis that enhancing green productivity is a positive and statistically significant determinant of real bilateral exports. The joint significance of the measures of GP and QMS is also supported. This article lends empirical support for the new trade theory and Linder's hypothesis and is consistent with those obtained in the existing literature.