Pollution Haven and Corruption Paradise

Fabien Candau () and Elisa Dienesch

Working Papers from HAL

Abstract: In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting firms in countries with lax environmental regulation (called pollution havens). Via a simple theoretical extension from the Economic Geography literature, we characterize the main features of pollution havens: a good market access to high-income countries and corruption opportunities. Using structural and reduced-form estimations, we analyse these determinants by exploiting a unique database on the number of European affiliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also fifind that corruption in these countries lowers environmental standards, which strongly attract polluting fifirms: a 1% increase in this indirect effect of corruption fuels relocation by 0.28%. We test the economic significance of these empirical fifindings 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: Environmental regulation; Multinational firms; Europe; Corruption; Market access; Trade (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-env and nep-geo
Note: View the original document on HAL open archive server: https://hal.science/hal-01847939v1
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Pollution Haven and Corruption Paradise (2017)
Working Paper: Pollution Haven and Corruption Paradise (2017)
Working Paper: Pollution Haven and Corruption Paradise (2016)
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