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Environmental Regulation and International Trade

Author

Listed:
  • Abay Mulatu

    (London School of Economics, London)

  • Raymond J.G.M. Florax

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Cees A. Withagen

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract

We empirically investigate the responsiveness of international trade to the stringency of environmental regulation. Stringent environmental regulation may impair the export competitiveness of ‘dirty’ domestic industries, and as a result, ‘pollution havens’ emerge in countries where environmental regulation is ‘over-lax.’ We examine the impact of pollution abatement and control costs on net exports in order to grasp this phenomenon. Theoretically, our analysis is related to a general equilibrium model of trade and pollution nesting the pollution haven motive for trade with the factor endowment motive. We analyze data on two-digit ISIC manufacturing industries during the period 1977–1992 in Germany, the Netherlands and the US, and show that trade patterns in ‘dirty’ commodities are jointly determined by relative factor endowments and environmental stringency differentials.

Suggested Citation

  • Abay Mulatu & Raymond J.G.M. Florax & Cees A. Withagen, 2004. "Environmental Regulation and International Trade," Tinbergen Institute Discussion Papers 04-020/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20040020
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    Citations

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    Cited by:

    1. Costantini, Valeria & Crespi, Francesco, 2008. "Environmental regulation and the export dynamics of energy technologies," Ecological Economics, Elsevier, vol. 66(2-3), pages 447-460, June.
    2. Babool, Md. Ashfaqul Islam & Reed, Michael R., 2005. "International Competitiveness and Environmental Regulations," 2005 Annual meeting, July 24-27, Providence, RI 19496, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
    4. Frankel, Jeffrey A., 2009. "Environmental Effects of International Trade," Scholarly Articles 4481652, Harvard Kennedy School of Government.
    5. Fabio Iraldo & Francesco Testa & Vlasis Oikonomou & Michela Melis & Marco Frey & Eise Spijker, 2009. "A literature review on the links between environmental regulation and competitiveness," Working Papers 200904, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.
    6. Andrea M. Leiter & Arno Parolini & Hannes Winner, 2009. "Environmental Regulation and Investment: Evidence from European Industries," Working Papers 2009-04, Faculty of Economics and Statistics, Universität Innsbruck.
    7. Leiter, Andrea M. & Parolini, Arno & Winner, Hannes, 2011. "Environmental regulation and investment: Evidence from European industry data," Ecological Economics, Elsevier, vol. 70(4), pages 759-770, February.
    8. Mulatu, Abay & Gerlagh, Reyer & Rigby, Dan & Wossink, Ada, 2009. "Environmental Regulation and Industry Location," Economic Theory and Applications Working Papers 47176, Fondazione Eni Enrico Mattei (FEEM).
    9. Erik Hille, 2018. "Pollution havens: international empirical evidence using a shadow price measure of climate policy stringency," Empirical Economics, Springer, vol. 54(3), pages 1137-1171, May.
    10. Cave, Lisa A. & Blomquist, Glenn C., 2008. "Environmental policy in the European Union: Fostering the development of pollution havens?," Ecological Economics, Elsevier, vol. 65(2), pages 253-261, April.
    11. Leiter, Andrea M. & Parolini, Arno & Winner, Hannes, 2010. "Environmental Regulation and Investment: Evidence from European Country-Industry Data," Working Papers in Economics 2010-1, University of Salzburg, revised 13 Jan 2010.
    12. Abay Mulatu, 2008. "Weighing the relative importance of environmental regulation for industry location," Economics Discussion Paper Series 0803, Economics, The University of Manchester.
    13. Michida, Etsuyo & Nishikimi, Koji, 2007. "North-South trade and industry-specific pollutants," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 229-243, September.
    14. Medalla, Erlinda M. & Lazaro, Dorothea C., 2005. "Does Trade Lead to a Race to the Bottom in Environmental Standards? Another Look at the Issues," Discussion Papers DP 2005-23, Philippine Institute for Development Studies.
    15. Juan Huang & Ziyi Wu, 2022. "Impact of Environmental Regulations on Export Trade—Empirical Analysis Based on Zhejiang Province," IJERPH, MDPI, vol. 19(19), pages 1-14, October.
    16. Lai, Yu-Bong, 2019. "Environmental policy competition and heterogeneous capital endowments," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 107-119.

    More about this item

    Keywords

    Trade; competitiveness; environmental policy; pollution abatement; pollution haven;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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