Strategic Interaction and Institutional Quality Determinants of Environmental Regulations across Select OECD Countries

We provide a model of environmental regulation to control transboundary pollution while considering the role of neighboring country regulations and measures of the quality of own and neighboring country government institutions. We apply a Spatial Durbin model to identify the determinants of the environmental regulations of several OECD countries. We do not find evidence of strategic interaction as the regulations of a neighbor do not significantly impact the own country regulations. However, the higher the quality of government institutions in a country, the more stringent the implementation of regulations. Additionally, government institutional quality significantly positively impacts the stringency of regulations in neighboring countries indirectly, possibly through technology choices.