Environmental regulations and BRICS export flows: an empirical test of the porter hypothesis

Abstract This study examines the impact of environmental regulations on intra- and extra-BRICS export flows and tests the validity of the Porter hypothesis for the bloc. Within the framework of the gravity model, this study utilizes a comprehensive panel dataset on the five BRICS countries for intra-BRICS trade and bilateral trade with 15 trading partners. Aggregate and dirty exports were analyzed from 2010 to 2021. It employs system GMM (SGMM) to address the potential issues of heterogeneity and endogeneity. Results indicate that environmental policy standards in the exporting countries have a promoting effect, while those in the importing countries have an inhibiting effect on intra-BRICS exports. This implies that the Porter hypothesis is invalid for intra-BRICS export flow when considering the diverse effects of environmental regulations in both exporting and importing countries. The results also demonstrate that the Porter hypothesis is invalid when extra-BRICS export flows are analyzed using disaggregated BRICS data (separating China and India from Brazil, Russia, and South Africa). However, when analyzing extra-BRICS trade using the full BRICS data, the findings show that both exporters’ and importers’ environmental standards promote trade, validating the hypothesis. Results highlight that the Porter Hypothesis’s validity relies on the chosen environmental regulation measures.