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Unmasking the Pollution Haven Hypothesis

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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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  • Arik Levinson and M. Scott Taylor, 2004. "Unmasking the Pollution Haven Hypothesis," Working Papers gueconwpa~04-04-04, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~04-04-04
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    Cited by:

    1. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2004. "Foreign Direct Investment and Pollution Havens: Evaluating the Evidence from China," Working Papers 15854, United States International Trade Commission, Office of Economics.
    2. Judith M. Dean & Mary E. Lovely & Hua Wang, 2017. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," World Scientific Book Chapters, in: Mary E Lovely (ed.), International Economic Integration and Domestic Performance, chapter 9, pages 155-167, World Scientific Publishing Co. Pte. Ltd..
    3. José-Antonio Monteiro & Madina Kukenova, 2008. "Does Lax Environmental Regulation Attract FDI When Accounting For "Third-Country" Effects?," IRENE Working Papers 08-01, IRENE Institute of Economic Research.
    4. Josh Ederington & Arik Levinson & Jenny Minier, 2005. "Footloose and Pollution-Free," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 92-99, February.
    5. Mahvash Saeed Qureshi, 2006. "Trade Liberalization, Environment and Poverty: A Developing Country Perspective," WIDER Working Paper Series RP2006-45, World Institute for Development Economic Research (UNU-WIDER).
    6. 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.
    7. Cole, Matthew A. & Elliott, Robert J.R. & Shimamoto, Kenichi, 2005. "Why the grass is not always greener: the competing effects of environmental regulations and factor intensities on US specialization," Ecological Economics, Elsevier, vol. 54(1), pages 95-109, July.
    8. Matthew A. Cole & Robert J. R. Elliott, 2003. "Do Environmental Regulations Influence Trade Patterns? Testing Old and New Trade Theories," The World Economy, Wiley Blackwell, vol. 26(8), pages 1163-1186, August.

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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)
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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