DP3932 Globalization and Dirty Industries: Do Pollution Havens Matter?

Author(s): Jaime de Melo, Jean-Marie Grether
Publication Date: June 2003
Keyword(s): gravity model, revealed comparative advantage, trade and the environment
JEL(s): Q28
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3932

This Paper reviews arguments and evidence on the impact of globalization on the environment, then presents evidence on production and international trade flows in five heavily polluting industries for 52 countries over the period 1981-98. A new decomposition of revealed comparative advantage (RCA) according to geographical origin reveals a delocalization to the South for all heavily polluting industries except non-ferrous metals that exhibits South-North delocalization in accordance with factor-abundance driven response to a reduction in trade barriers. Panel estimation of a gravity model of bilateral trade on the same data set reveals that, on average, polluting industries have higher barriers-to-trade costs (except non-ferrous metals with significantly lower barriers to trade) and little evidence of delocalization in response to a North-South regulatory gap.