Does the ratification of an international environmental agreement (IEA) reduce
a country’s competitiveness on world markets? In this paper, we take a gravity regression
approach to answering this question by using industry-level bilateral trade
data and employing time-varying country fixed effects to control for the endogeneity
of treaty participation. We find that ratifying an IEA has significant (albeit small)
negative effects on the exports of a country’s median manufacturing industry as well as a compositional shift towards exporting cleaner goods. However, we also show that this negative competitive effect on the median manufacturing industry disappears in the long-run. In fact, the positive compositional shift becomes stronger in the long-run as a ratifying country sees a further decline in exports of dirtier industries which is more than compensated for by an increase in exports of cleaner industries, with an overall positive but negligible effect on employment.