Trade and Environment: An Empirical Analysis of the Technology Effect in the Steel Industry

The objective of this paper is to study the impact of free trade on global environmental quality by focusing on the technology effect, that is, the relationship between trade openness and the adoption/diffusion of clean technologies. The paper attempts to empirically verify the existence of the technology effect by looking at the relationship between trade policy regime, or openness, and the speed of clean technology diffusion in the steel industry. Focusing on a cleaner steel technology, the electric arc furnace (EAF), in 30 steel-producing countries over 25 years, the results show that EAF technology is diffused faster in countries that have more open trade policy regimes, thereby supporting the existence of the technology effect for the industry considered.