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Pollution Haven and Corruption Paradise

Author

Listed:
  • Fabien Candau

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)

  • Elisa Dienesch

Abstract

In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting firms in countries with lax environmental regulation (called pollution havens). Via a simple theoretical extension from the Economic Geography literature, we characterize the main features of pollution havens: a good market access to high-income countries and corruption opportunities. Using structural and reduced-form estimations, we analyse these determinants by exploiting a unique database on the number of European affiliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also fifind that corruption in these countries lowers environmental standards, which strongly attract polluting fifirms: a 1% increase in this indirect effect of corruption fuels relocation by 0.28%. We test the economic significance of these empirical fifindings via simulations. The protection of the European market (e.g., a carbon tax on imports) to stop relocations to pollution havens must be high (a decrease of the European market for Morocco and Tunisia equivalent to 13%) not to say prohibitive (31% for China).

Suggested Citation

  • Fabien Candau & Elisa Dienesch, 2016. "Pollution Haven and Corruption Paradise," Working Papers hal-01847939, HAL.
  • Handle: RePEc:hal:wpaper:hal-01847939
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01847939
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    References listed on IDEAS

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    Keywords

    Trade; Europe; Multinational firms; Environmental regulation; Corruption; Market access;

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