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Trade Agreements and the Environment: An Industry Level Study for NAFTA

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  • MacDermott Raymond

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    (Virginia Military Institute)

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    Abstract

    The aim of this paper is to explore two apparently unrelated issues – regional trade agreements and the pollution-haven hypothesis. They are linked by the belief that the elimination of trade barriers will further encourage firms already considering a move to countries with weak environmental regulations. Given the proliferation of trade agreements, as well as the movement of environmental issues to the forefront of our political process, a better understanding of the policy effects is needed. We apply a test equation loosely based on the gravity model to a data set of industry-level foreign direct investment from the Unites States to 23 partner countries from 1982 to 1999. Using pollution emissions as a proxy for environmental stringency, we find strong evidence in support of the pollution-haven hypothesis. We also find the NAFTA increase outflows of U.S. FDI. Finally, the NAFTA appears to encourage the pollution-haven effect.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Global Economy Journal.

    Volume (Year): 6 (2006)
    Issue (Month): 3 (September)
    Pages: 1-24

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    Handle: RePEc:bpj:glecon:v:6:y:2006:i:3:n:3

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    Web page: http://www.degruyter.com

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    Cited by:
    1. Mateo Vasco & Lina M. Cortés & Sandra C. Gaitán & Iván A. Durán, 2012. "Aplicación del modelo gravitacional al impacto del gobierno corporativo en las fusiones y adquisiciones en Latinoamérica," DOCUMENTOS DE TRABAJO CIEF 010709, UNIVERSIDAD EAFIT.
    2. Kukenova, Madina & Monteiro, Jose-Antonio, 2008. "Does Lax Environmental Regulation Attract FDI when accounting for "third-country" effects?," MPRA Paper 11321, University Library of Munich, Germany, revised Sep 2008.
    3. Lawn, Philip & Clarke, Matthew, 2010. "The end of economic growth? A contracting threshold hypothesis," Ecological Economics, Elsevier, vol. 69(11), pages 2213-2223, September.

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