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Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?

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Author Info
Quiroga, Miguel
Sterner, Thomas
Persson, Martin

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Abstract

We aim to study whether lax environmental regulations induce comparative advantages, causing the least-regulated countries to specialize in polluting industries. The study is based on Trefler and Zhu’s (2005) definition of the factor content of trade. For the econometrical analysis, we use a cross-section of 71 countries in 2000 to examine the net exports in the most polluting industries. We try to overcome three weaknesses in the empirical literature: the measurement of environmental endowments or environmental stringency, the possible endogeneity of the explanatory variables, and the influence of the industrial level of aggregation. As a result, we do find some evidence in favor of the pollution-haven effect. The exogeneity of the environmental endowments was rejected in several industries, and we also find that industrial aggregation matters.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-07-08.

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Date of creation: 24 Apr 2007
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Handle: RePEc:rff:dpaper:dp-07-08

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Related research
Keywords: comparative advantage; environmental regulation; trade; pollution haven; Porter hypothesis;

Find related papers by JEL classification:
F18 - International Economics - - Trade - - - Trade and Environment
Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2005. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," Policy Research Working Paper Series 3505, The World Bank. [Downloadable!]
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    Other versions:
  4. Daniel Trefler & Susan Chun Zhu, 2005. "The Structure of Factor Content Predictions," NBER Working Papers 11221, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Matthew A. Cole & Robert J. R. Elliott, 2003. "Do Environmental Regulations Influence Trade Patterns? Testing Old and New Trade Theories," The World Economy, Blackwell Publishing, vol. 26(8), pages 1163-1186, 08. [Downloadable!] (restricted)
  7. Mody, Ashoka & Roy, Subhendu & Wheeler, David & Dasgupta, Susmita, 1995. "Environmental regulation and development : a cross-country empirical analysis," Policy Research Working Paper Series 1448, The World Bank. [Downloadable!]
    Other versions:
  8. Palmer, Karen & Oates, Wallace E & Portney, Paul R, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-32, Fall. [Downloadable!] (restricted)
  9. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February. [Downloadable!] (restricted)
  10. Tobey, James A, 1990. "The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Test," Kyklos, Blackwell Publishing, vol. 43(2), pages 191-209.
  11. van Beers, Cees & van den Bergh, Jeroen C J M, 1997. "An Empirical Multi-country Analysis of the Impact of Environmental Regulations on Foreign Trade Flows," Kyklos, Blackwell Publishing, vol. 50(1), pages 29-46.
  12. Murrell, Peter & Ryterman, Randi, 1991. "A methodology for testing comparative economic theories: Theory and application to East-West environmental policies," Journal of Comparative Economics, Elsevier, vol. 15(4), pages 582-601, December. [Downloadable!] (restricted)
  13. Siebert, Horst, 1977. "Environmental Quality and the Gains from Trade," Kyklos, Blackwell Publishing, vol. 30(4), pages 657-73.
  14. Cole, Matthew A. & Elliott, Robert J.R. & Shimamoto, Kenichi, 2005. "Industrial characteristics, environmental regulations and air pollution: an analysis of the UK manufacturing sector," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 121-143, July. [Downloadable!] (restricted)
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  1. Chris Bataille & Benjamin Dachis & Nic Rivers, 2009. "Pricing Greenhouse Gas Emissions: The Impact on Canada's Competitiveness," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 280, February. [Downloadable!]
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