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Pollution havens and industrial agglomeration

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  • Zeng, Dao-Zhi
  • Zhao, Laixun

Abstract

This paper examines the pollution haven hypothesis using a spatial-economy model of two countries and two sectors. The manufacturing sector generates cross-border pollution which reduces cross-sectoral productivity of agricultural goods, and lowers local income. We derive a demand-reducing effect that discourages firms to move to the country with laxer environmental regulations, in the absence of any comparative advantage. Our analysis also demonstrates that manufacturing agglomeration forces can alleviate the pollution-haven effect: a pollution haven may not arise if environmental regulation is slightly more stringent in the larger country.

Suggested Citation

  • Zeng, Dao-Zhi & Zhao, Laixun, 2009. "Pollution havens and industrial agglomeration," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 141-153, September.
    • Handle: RePEc:eee:jeeman:v:58:y:2009:i:2:p:141-153
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    More about this item

    Keywords

    Pollution abatement Industrial agglomeration Trade costs;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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