Club membership and transboundary pollution: Evidence from the European Union enlargement

- We model two countries (the MDC & the LDC) linked through transboundary pollution.
- The downwind MDC makes side payment to the upwind LDC for its abatement production.
- The MDC also induces better environmental effort in the LDC with club membership.
- We examine the EU enlargements in the 21st century for our empirical study.
- We find a robust correlation between EU membership and environmental performance.

We set up a theoretical model in which a less developed country (the LDC) undertakes an activity that imposes negative transboundary pollution effects on a more developed country (the MDC). The MDC can effectively make a Coasian payment in the form of direct environmental assistance, but can also encourage good “environmental citizenship” through its influence over the prospect that the LDC will gain the benefits of membership into a particular international club. We examine the strategic interactions between the LDC and the MDC in this regional environmental game, and our comparative statics analysis explores how a change in the membership “payoff” will affect the environmental efforts and outcome of both countries. Our theoretical model also addresses the issue of the economic growth in the LDC as well as its environmental impacts in the region. We also conduct empirical study and examine the evidence in the thirteen Central and Eastern European (CEE) countries that joined the European Union (EU) in the 21st century and investigate the impacts of EU membership on their environmental performance. We find that there is a robust correlation between the degree of EU integration and pollution abatement from the LDC, and we also observe that emissions of selected pollutants seem to follow a concave pattern relative to the national income, both of which coincide with our theoretical discussions.