THE EFFECTS OF DOMESTIC ENVIRONMENTAL POLICIES ON PATTERNS OF WORLD TRADE: AN EMPIRICAL TEST

James A. Tobey

In theory, environmental control costs encourage reduced specialization in the production of polluting outputs in countries with stringent environmental regulations (Pethig, 1976; Siebert, 1977; McGuire, 1982). In contrast, countries that fail to undertake an environmental protection program presumably increase their comparative advantage in the production of items that damage the invironment. This relationship between trade and environmental policy receives considerable attention whenever countries are in the process of passing new pollution control measures. Groups who oppose existing measures, of the implementation of stiffer measures, argue that they reduce the ability of polluting industries to compete internationally. With foreign trade an increasingly important sector in many of the world’s economies, the arguments of such groups are now frequently weighted very heavily.

The premise that trade suffers from the imposition of environmental policy has a strong element of a priori plausibility but, surprisingly, has little empirical support. Several macroeconometric models (D’Arge, 1974; Robison, 1986; OECD, 1985) have predicted that pollution control measures should lead to a small but discernible effect on the balance of trade, but there are few studies to confirm this prediction.

The location-of-industry studies (Leonard, 1988; Pearson, 1987, 1985; Walter, 1985) have explored the related ideas that stringent pollution control measures push industries out of the U.S. (the ‘industrial-flight’ hypothesis), and that less-developed countries compete to attract multinational industries by minimizing their own environmental policies (the ‘pollution-haven’ hypothesis). Their investigations, however, have been unable to find evidence in support of either hypothesis.

The present paper complement the results of the less rigorous location of industy studies by providing an empirical test of the hypothesis that stringent environmental policy has caused trade patterns to deviate in commodities produced by the world’s ‘dirty’ industries.

Extraído de: TOBEY, James A. The effects of domestic environmental policies on patterns of world trade: an empirical test. Kiklos; international review for social science, Basel, v.43, n.2, p.191-209.

As put in the third paragraph:

Item 2: according to these authors developing countries soften their environmental regulations in order to attract industries located elsewhere.