Industry Size and Trade Protection in the Presence of Environmental Regulations: An Empirical Investigation of the Indian Manufacturing Sector

Abstract

Abstract This paper tests the hypothesis pertaining to the interdependencies between trade and environmental policies in the presence of industry/firm lobbies, which is captured through industry/firm size. For an unbalanced panel of manufacturing firms in India at the five-digit National Industrial Classification (NIC), 2008 for the period 2008–2019, I find that firm size has a positive and significant impact on trade policy. The same holds true for a subset of firms that are polluting in nature (based on the Central Pollution Control Board classification). It is found that larger firms have a greater influence on those trade policies that are set unilaterally by the government. Also, there is no empirical support in favour of trade and environment linkages in the Indian context. This could be due to the fact that these two policies come under the domain of independent ministries of the government. Moreover, environmental safety assumes less significance and tends to adversely affect the competitiveness of the manufacturing sector. Notwithstanding the fact that environmental regulations are in place, the enforcement and monitoring mechanisms are remarkably weak on account of weak environmental institutions.