Trade in pollutive industries and the stringency of environmental regulations

Abstract

This article analyses the impact of trade in pollution-intensive industries on the stringency of environmental regulation. Using system Generalized Method of Moments (GMM) regressions for a panel of 92 countries and the period 1998 to 2007, we find that an increase in net exports of pollution-intensive goods leads to a lowering of the stringency of environmental regulations.

Keywords:

• environment and trade
• pollution havens
• environmental policy

JEL Classification:

• F18
• Q56
• Q58

Notes

¹ We use the natural log of income per capita, as the relationship between gdp and envreg is likely to be nonlinear. In fact, if we use GDP per capita and GDP per capita squared instead of the log of GDP per capita, we obtain a positive and a negative coefficient for the first and the latter variables, respectively (results not shown). All nonreported results can be obtained from the authors upon request.

² Data for the trade variables, income per capita and urbanization are taken from the World Bank's World Development Indicators, whereas information on corruption is obtained from the International Country Risk Guide.

³ In fact, we use the collapse option in Stata in column 3.

⁴ Note that the Sargan–Hansen J-statistic indicates that the instruments may not be valid in this case.