Trade Liberalization and Pollution in Turkey: An Empirical Re-evaluation of Pollution Heavens Hypothesis

After Customs Union with Europe in 1996, Turkey has put considerable efforts in trade liberalization policies. Some argues that such liberalization may have drawbacks for developing countries such as Turkey in regards to environmental concerns. Although economic liberalization stimulates economic growth and development, it also changes the structure and composition of the production. According to Pollution Heavens Hypothesis (PHH) which claims that some multi-national companies choose developing countries as a base in order to produce their polluting goods. In other words, these multinational firms intensify their polluting production in developing and/or underdeveloped countries. This is because these countries have more pollution absorbing capacity due to lack of industrial waste, less sensitivity towards the environment, lower per capita income, imperfectly defined property rights, etc. The study uses IPIC data test if PHH is valid for the Turkish industrial sector. Our findings indicate that while pollution scale effect increases over time, composition effect decreases. Necessary precautions should be taken in using the results due to data limitations.