Globalization and Pollution Industries in East Asia

In this paper, we investigate what the East Asian data tell us about the "pollution haven hypothesis." In the region, pollution goods are not traded so much directly, and their production is not clearly correlated with inward FDI and openness of the country in question. Although production of pollution goods is indirectly related to manufacturing exports as materials and intermediate goods, domestic consumption exerts larger impact on the production than exports. These facts imply that pollution industries are not so much influenced by the "globalization," suggesting indirectly also that a gap in environmental regulations do not lead to an increased scale of foreign trade and FDI. To the question of how FDI inflows and openness contribute to energy efficiency and labor productivity, we find a positive effect of FDI on the labor productivity in low and middle-income countries, although its effect on energy efficiency is rather vague.