No Place Like Home: Home Bias and Environmental Concern in the European Union

Sammanfattning: This research paper analyzes the effect of growing environmental concern on home bias in the European Union. Using the latest release of the International Trade and Production Database for Estimation, for the years 2002-2016, the home bias is estimated with the gravity model of trade. The Eurobarometer “Public Opinion in the European Union” is used as a proxy for environmental concern over the same years. Concern for the environment in the European Union has seen an increase during the 21st century, indicating a shift toward more sustainable and local consumption. Simultaneously, the home bias has shown a general decrease in the European Union and its respective countries. An increase in local and domestic consumption could lead to a larger home bias. The results do not find any conclusive evidence of environmental concern affecting the home bias. However, when controlling for unobserved heterogeneity with a rich set of fixed effects, there are indications of a positive relationship between the two variables. This paper extends the current literature on environmental concern and home bias and contributes with a previously unexplored relationship: if environmental concern affects the home bias.