Bilateral trade and voluntary environmental standards: Insights from ISO 14001 certification

This paper examines the relationship between ISO 14001 certification intensity and bilateral trade flows within a structural gravity framework. Exploiting variation between intra-national and international trade flows, we estimate the differential effect of exporter-specific ISO 14001 certification intensity on international trade relative to intra-national trade in the presence of high-dimensional fixed effects. Using a balanced panel of 38 OECD countries over the period 2000-2019, we find a positive estimated differential effect of exporter-specific ISO 14001 certification intensity on international trade relative to intra-national trade. The estimated coefficients imply that a 1% increase in certification intensity corresponds to approximately 0.05% higher international trade relative to intra-national trade within the maintained structural-gravity specification. The estimated differential effect is slightly larger when lagged certification intensity is used, a pattern consistent with gradual adjustment as firms implement environmental management practices, signal compliance to foreign partners, and adjust their international market relationships. The positive estimate remains robust across alternative cardinal definitions of certification intensity, FE specifications, additional bilateral controls, crisis-period checks, and alternative country samples, including a global sample of 198 countries. Sectoral analysis reveals substantial heterogeneity: the estimated differential effect is strongest in agriculture and manufacturing, smaller in services, and not statistically significant in mining and energy. These findings highlight substantial sectoral heterogeneity in the trade-related effects of voluntary environmental standards.