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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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    References listed on IDEAS

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    1. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    2. 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, pages 944-952.
    3. 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.
    4. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    5. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, pages 7-71.
    6. Josh Ederington & Arik Levinson & Jenny Minier, 2005. "Footloose and Pollution-Free," The Review of Economics and Statistics, MIT Press, pages 92-99.
    7. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
    8. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
    9. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    10. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
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    More about this item

    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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