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Unmasking the Pollution Haven Effect

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  • Arik Levinson
  • M. Scott Taylor

Abstract

This paper uses both theory and empirical work to examine the effect of environmental regulations on trade flows. We develop a simple economic model to demonstrate how unobserved heterogeneity, endogeneity and aggregation issues bias measurements of the relationship between regulatory costs and trade. We apply an estimating equation derived from the model to data on U.S. regulations and net trade flows among the U.S., Canada, and Mexico, for 130 manufacturing industries from 1977 to 1986. Our results indicate that industries whose abatement costs increased most experienced the largest increases in net imports. For the 20 industries hardest hit by regulation, the change in net imports we ascribe to the increase in regulatory costs amounts to more than half of the total increase in trade volume over the period.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10629.

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Date of creation: Jul 2004
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Publication status: published as Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, 02.
Handle: RePEc:nbr:nberwo:10629

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  1. John A. List & Daniel L. Millimet & Per G. Fredriksson & W. Warren McHone, 2003. "Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 944-952, November.
  2. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 36(1), pages 137-154, February.
  3. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  4. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
  5. Josh Ederington, Arik Levinson & Jenny Minier, 2003. "Footlose and Pollution Free," Working Papers, Georgetown University, Department of Economics gueconwpa~03-03-04, Georgetown University, Department of Economics.
  6. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  7. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195060119, October.
  8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 379-399, June.
  9. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc.
  10. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
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