DP5815 Unravelling the World-Wide Pollution Haven Effect

Author(s): Jaime de Melo, Jean-Marie Grether, Nicole Andréa Mathys
Publication Date: September 2006
Keyword(s): pollution haven, trade and the environment
JEL(s): F18
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5815

This paper contributes to the debate on the existence of pollution haven effects by systematically measuring the pollution content of trade (measured by the polluction content of imports (PCI)) and decomposing it into three components: a `deep' (i.e. unrelated to the environmental debate) component and two components (factor endowments and environmental policies) that occupy centerstage in the debate on trade and the environment. The decomposition is carried out for 1986-88 for an extensive data set covering 10 pollutants, 48 countries and 79 ISIC 4-digit sectors. Illustrative decompositions presented for 3 of the 10 pollutants in the data set indicate a significant pollution haven effect and highlight the role of factor endowments in each region's PCI. However, because the bulk of trade is intra-regional with a high North-North share, these effects are small relative to the `deep' determinants of the worldwide pollution content of trade.