Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 412: Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?

Miguel Quiroga (), Thomas Sterner () and Martin Persson ()
Additional contact information
Miguel Quiroga: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Thomas Sterner: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Martin Persson: department of Energy and Environment, Chalmers University of Technology, Gothenburg

Abstract: We aim to study whether lax environmental regulations induce comparative advantages, causing the least-regulated countries to specialize in polluting industries. The study is based on Trefler and Zhu’s (2005) definition of the factor content of trade. For the econometrical analysis, we use a cross-section of 71 countries in 2000 to examine the net exports in the most polluting industries. We try to overcome three weaknesses in the empirical literature: the measurement of environmental endowments or environmental stringency, the possible endogeneity of the explanatory variables, and the influence of the industrial level of aggregation. As a result, we do find some evidence in favor of the pollution-haven effect. The exogeneity of the environmental endowments was rejected in several industries, and we also find that industrial aggregation matters.

Keywords: comparative advantage; environmental regulation; trade; pollution haven; Porter hypothesis

JEL-codes: F18; Q56

38 pages, December 4, 2009

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Published as
Miguel Quiroga, Thomas Sterner and Martin Persson, (2007), 'Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?', RFF Discussion Paper Series, RFF DP07-08, pages 38

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