Trade Agreements and the Environment: An Industry Level Study for NAFTA

MacDermott Raymond ()
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MacDermott Raymond: Virginia Military Institute

Global Economy Journal, 2006, vol. 6, issue 3, 24

Abstract: The aim of this paper is to explore two apparently unrelated issues - regional trade agreements and the pollution-haven hypothesis. They are linked by the belief that the elimination of trade barriers will further encourage firms already considering a move to countries with weak environmental regulations. Given the proliferation of trade agreements, as well as the movement of environmental issues to the forefront of our political process, a better understanding of the policy effects is needed. We apply a test equation loosely based on the gravity model to a data set of industry-level foreign direct investment from the Unites States to 23 partner countries from 1982 to 1999. Using pollution emissions as a proxy for environmental stringency, we find strong evidence in support of the pollution-haven hypothesis. We also find the NAFTA increase outflows of U.S. FDI. Finally, the NAFTA appears to encourage the pollution-haven effect.

Keywords: pollution-haven hypothesis; environmental regulations; NAFTA; regional trade agreement; foreign direct investment (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (8)

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DOI: 10.2202/1524-5861.1128

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