The impact of domestic environmental policies on international trade
In industrialized countries, the cost of environmental control in the most polluting industries is a significant percentage of total costs. In theory, these environmental control coats encourage reduced specialization in the production of polluting outputs in countries with stringent environmental regulations. In contrast, countries that fail to undertake an environmental protection program should increase their comparative advantage in the production of items that damage the environment. The pollution-haven hypothesis argues that such countries will tend to become havens for the world's dirty industries. Both Heckscher-Ohlin and specific-factors trade models provide a theoretical framework for this hypothesis. In these models, the environment is treated as an additional factor of production. The analysis focuses on the impact of domestic environmental regulations on international specialization, factor returns, and real exchange rates. The thesis examines the type of environmental problems confronting low income countries and evaluates the conditions under which their lax pollution control measures may be socially optimal. It is argued that poverty-related pollution is a more critical problem in these countries than pollution related to industrial effluents. Previous empirical tests of the pollution-haven hypothesis are very limited. A major goal is to provide information on the level of stringency of environmental protection policies across countries and to test whether these policies affect the composition of international trade. A set of 58 countries are studied and a cross-section Heckscher-Ohlin-Vanek model of trade is used to conduct the empirical analysis. This model is extended to allow for non-homothetic preferences and economies of scale/product differentiation. Environmental protection policies have not significantly affected international comparative advantage and the pattern of world trade.
- Research Organization:
- Maryland Univ., College Park, MD (USA)
- OSTI ID:
- 6908242
- Country of Publication:
- United States
- Language:
- English
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