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Pollution Haven and Corruption Paradise

Fabien Candau () and Elisa Dienesch

Journal of Environmental Economics and Management, 2017, vol. 85, issue C, 171-192

Abstract: In this paper, we present a simple theoretical extension from the Economic Geography literature to characterize the main features of pollution havens (lax environmental regulation, good market access to high-income countries and corruption opportunities). Using structural and reduced-form estimations, we find that pollution havens are not a “popular myth” for European firms, laxer environmental standards significantly explain the location choice of polluting affiliates. We analyze in depth the role of trade costs (using various bilateral and multilateral measures), a 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also find that corruption lowers environmental standards, which strongly attract polluting firms: a 1% increase of corruption fuels relocation by 0.28%. We test the economic significance of these empirical findings via simulations. The protection of the European market (e.g., a carbon tax on imports) to stop relocations to pollution havens must be high (a decrease of the European market for Morocco and Tunisia equivalent to 13%) not to say prohibitive (31% for China).

Keywords: Multinational firms; Environmental regulation; Europe; Corruption; Market access; Trade (search for similar items in EconPapers)
JEL-codes: F12 Q5 Q53 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Pollution Haven and Corruption Paradise (2017)
Working Paper: Pollution Haven and Corruption Paradise (2016) Downloads
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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