Trade Liberalization and Pollution Intensive Industry in Developing Countries: A Partial Equilibrium Approach
Author(s)
Gallagher, Kevin P.; Ackerman, Frank
Abstract
Economic theory suggests that liberalization of trade between countries with differing levels of environmental protection could lead pollution-intensive industry to concentrate in the nations where regulations are lax. This effect, often referred to as the “pollution haven” hypothesis, is much discussed in theory, but finds only ambiguous support in empirical research to date. Methodologies used for research on trade and environment differ widely; many are difficult to apply to practical policy questions. The authors develop a simple, partial equilibrium model explicitly designed to analyze the effects of a change in trade policy. Their model analyzes the relative concentrations of “clean” and “dirty” industries in two nations or regions, before and after the policy change. While lacking the theoretical rigor and mathematical intricacy of other modeling methods, their approach has the advantages of transparency and accessibility to a broad range of analysts and policy makers.
