Are Free Trade Agreements Good for the Environment? A Panel Data Analysis
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This study attempts to empirically re-examine the relationship between free trade agreements (FTAs)
and greenhouse gas (GHG) emissions. For this aim, we chose three different free trade agreements:
Southern Common Market (MERCOSUR), North American Free Trade Agreement (NAFTA), and the
Australia-United States Free Trade Agreement (AUSFTA). These FTAs are between developing
countries, developed and developing countries, and only developed countries, respectively. Panel unit
root, panel cointegration, and fully modified OLS (FMOLS) estimators are employed to find the longrun
relationship between GHG emission, trade liberalization, and other economic factors. The results
indicate that the environmental effect of a free trade agreement depends on the agreement type. When
the agreement is among only developed or only developing countries, there is no environmental damage
to the world and these types of FTAs can be beneficial for the world environment. However, when
developing and developed countries are in the agreement, world GHG emissions increase.