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Pollution Havens and Industrial Agglomeration

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  • Dao-Zhi Zeng

    (Graduate School of Management, Kagawa University, Japan)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

Pollution-intensive industries are generally characterized by imperfect competition, increasing returns to scale and large transportation costs. We investigate two countries, N and S, each with two sectors. Manufacturing generates cross-border pollution which reduces agricultural production. Firms can freely move across country borders, but not workers. First, we show that pollution lowers local income since it reduces agricultural production. This income-reduction effect discourages firms to move to the country with laxer environmental regulations that generate more pollution. Second, our analysis demonstrates that manufacturing agglomeration forces can alleviate the pollution haven effect. And a pollution haven may not arise, if environmental regulation is slightly more stringent in the larger country N than in the smaller country S. These results are strongly supported by recent empirical findings. In addition, the model predictions call for international cooperation of environmental policies, especially when trade becomes freer.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp197.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 197.

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Length: 31 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:kob:dpaper:197

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Keywords: Pollution; Industrial Agglomeration; Trade Costs;

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References

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  1. Copeland, Brian R. & Taylor, M. Scott, 1999. "Trade, spatial separation, and the environment," Journal of International Economics, Elsevier, vol. 47(1), pages 137-168, February.
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Citations

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Cited by:
  1. Gori, Giuseppe Francesco & Lambertini, Luca, 2013. "Trade liberalisation between asymmetric countries with environmentally concerned consumers," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 549-560.
  2. Yuyu Chen & Ginger Zhe Jin & Naresh Kumar & Guang Shi, 2013. "Gaming in Air Pollution Data? Lessons from China," NBER Working Papers 18729, National Bureau of Economic Research, Inc.
  3. repec:laf:wpaper:201202 is not listed on IDEAS
  4. Forslid, Rikard & Okubo, Toshihiro & Sanctuary, Mark, 2013. "Trade, Transboundary Pollution and Market Size," CEPR Discussion Papers 9412, C.E.P.R. Discussion Papers.
  5. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2014. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Working Papers 2014.55, Fondazione Eni Enrico Mattei.
  6. Fabrice DARRIGUES & Jean-Marc MONTAUD, 2010. "Trade Liberalization, Environmental Regulation and Self-Regulation of Multinational Firms," Working Papers 2010-2011_5, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2010.
  7. Ulrich J. Wagner & Christopher Timmins, 2010. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Working Papers 10-05, Duke University, Department of Economics.
  8. Jing Lan & Makoto Kakinaka & Xianguo Huang, 2012. "Foreign Direct Investment, Human Capital and Environmental Pollution in China," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(2), pages 255-275, February.
  9. Kyriakopoulou, Efthymia & Xepapadeas, Anastasios, 2013. "Environmental policy, first nature advantage and the emergence of economic clusters," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 101-116.
  10. Cole, Matthew A. & Elliott, Robert J.R. & Okubo, Toshihiro, 2010. "Trade, environmental regulations and industrial mobility: An industry-level study of Japan," Ecological Economics, Elsevier, vol. 69(10), pages 1995-2002, August.
  11. TAKATSUKA Hajime & NAKAMURA Ryohei, 2010. "Emission Credit Trading and Regional Inequalities," Discussion papers 10062, Research Institute of Economy, Trade and Industry (RIETI).
  12. Anne Musson, 2012. "Construire l’attractivité durable régionale: l’exemple de l’Aquitaine," Larefi Working Papers 1202, Larefi, Université Bordeaux 4.
  13. Anne Musson, 2012. "Construire l'attractivité durable régionale: l'exemple de l'Aquitaine," Working Papers hal-00704414, HAL.

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