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Trade Liberalization and Pollution Intensive Industries in Developing Countries: A Partial Equilibrium Approach

Frank Ackerman () and Kevin Gallagher

International Trade from University Library of Munich, Germany

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. We develop a simple, partial equilibrium model explicitly designed to analyze the effects of a change in trade policy. Our 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, our approach has the advantages of transparency and accessibility to a broad range of analysts and policy makers.

Keywords: trade liberalization; partial equilibrium; pollution haven; trade; environmental policy; NAFTA (search for similar items in EconPapers)
JEL-codes: F1 F4 L5 O0 Q2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2001-06-13
Note: Type of Document - PDF; pages: 21; figures: n/a. This paper was published in Methodologies for Assessing the Environmental Impacts of Trade Liberalization Agreements. Dale Andrews, ed. (Paris: OECD, 2000). It has been reprinted with permission. Other working papers available at www.gdae.org
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