Estimating the Effects of Kyoto on Bilateral Trade Flows Using Matching Econometrics

Many Kyoto countries fear a loss of competitiveness due to unilateral climate policy efforts; policymakers therefore call for carbon-related border tax adjustments. With this paper we attempt to estimate the treatment effect of Kyoto commitment on bilateral export flows using regression-adjusted differences-in-differences matching techniques. The gravity and international environmental agreement formation literatures provide guidelines for the choice of matching variables. We find that Kyoto countries’ exports are reduced by 13 to 14 per cent due to Kyoto commitment. Trade effects are largest in energy-intensive, homogeneous industries such as iron and steel, non-ferrous metals, organic and inorganic chemicals but also in machinery and equipment.