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Pollution Haven and Corruption Paradise

Listed author(s):
  • Fabien CANDAU
  • Elisa DIENESCH

In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting rms 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 aliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also find that corruption in these countries lowers environmental standards, which strongly attract polluting firms: a 1% increase in this indirect effect of corruption fuels relocation by 0.28%. We test the economic signicance of these empirical findings 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).

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File URL: http://gtl.univ-pau.fr/travaux/2376F_2016_2017_2docWCATT_Pollution_Haven_Corruption_Paradise_FCandau_EDienesch.pdf
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Paper provided by CATT - UPPA - Université de Pau et des Pays de l'Adour in its series Working Papers with number 2016-2017_2.

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Length: 43 pages
Date of creation: Oct 2016
Date of revision: Oct 2016
Handle: RePEc:tac:wpaper:2016-2017_2
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