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Unmasking The Pollution Haven Effect

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  • Arik Levinson
  • M. Scott Taylor

Abstract

We use theory and empirics to examine the effect of environmental regulations on trade flows. A simple model demonstrates how unobserved heterogeneity, endogeneity, and aggregation issues bias standard measurements of this relationship. A reduced-form estimate of the model, using data on U.S. regulations and trade with Canada and Mexico for 130 manufacturing industries from 1977 to 1986, indicates that industries whose abatement costs increased most experienced the largest increases in net imports. For the average industry, the change in net imports we ascribe to regulatory costs amounting to 10% of the total increase in trade volume over the period. Copyright 2008 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • 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, February.
    • Handle: RePEc:ier:iecrev:v:49:y:2008:i:1:p:223-254
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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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