Elsevier

Ecological Economics

Volume 65, Issue 2, 1 April 2008, Pages 253-261
Ecological Economics

METHODS
Environmental policy in the European Union: Fostering the development of pollution havens?

https://doi.org/10.1016/j.ecolecon.2007.12.018Get rights and content

Abstract

A pollution haven occurs when dirty industries from developed nations relocate to developing nations in order to avoid strict environmental standards or developed nations imports of dirty industries expand replacing domestic production. The purpose of this study is to determine whether the European Union (EU) has increased its imports of “dirty” goods from poorer, less democratic countries during a period of more stringent environmental standards. Previous empirical studies such as those by Levinson and Taylor [Levinson, A., and Taylor, M.S., in press. Unmasking the Pollution Haven Effect. International Economic Review.], Ederington, Levinson and Minier [Ederington, J., Levinson, A., and Minier, J., 2005. Footloose and Pollution-Free. Review of Economics and Statistics., 87: 92–99.], Kahn and Yoshino (2004), and Ederington and Minier [Ederington, J., and Minier. J., 2003. Is Environmental Policy a Secondary Trade Barrier? An Empirical Analysis. Canadian Journal of Economics., 36: 137–54.] find evidence that United States imports are responsive to changes in environmental stringency, but the effects of EU policy have not been examined as thoroughly. Our study follows Kahn [Kahn, M.E., 2003. The Geography of Us Pollution Intensive Trade: Evidence from 1958 to 1994. Regional Science and Urban Economics., 33: 383–400.] and examines the impact of industry energy intensity and toxicity, measured by an energy index and a Toxic Release Inventory (TRI) index, on imports into the EU, at the 2-digit industry level from 1970 to 1999. We use the signing of the Maastricht Treaty to signify a period of more uniform and stringent community wide environmental standards (1993–1999), and identify the level of per capita GDP within an EU trading partner. We find an increased amount of EU energy intensive trade with poorer countries during the period with more stringent EU environmental standards. This result is not robust, however, when poorer countries are defined by OECD membership and geographic region. We do not find an increased amount of EU toxic intensive trade with poorer countries although there is some evidence of increased EU imports of toxic goods from poorer OECD and non-EU European countries. For our full sample of trading partners in all regions, the evidence supports the PHH for EU energy intensive trade, but not for toxic intensive trade. Results for regional trade analysis are less clear.

Section snippets

Pollution havens

The 1990s was a decade in which environmental standards were tightened throughout the developed world. This rise in environmental stringency has led to a discussion about the pollution haven hypothesis (PHH). The PHH proposes that environmental stringency differences between developed and developing countries, encourages developing countries to specialize and gain a comparative advantage in the production of “dirty” goods. If the PHH holds, developed nations should observe a rise in imports of

New EU environmental policy implementation period

In 1957, six European States signed the Treaty of Rome and formed the European Economic Community (EC). The primary goal of the Treaty was to increase economic performance for member nations. No explicit provisions for environmental policies, environmental agencies, or environmental law were made (Jordan, 2005, p1). It was not until the late 1960s and 1970s when the U.S. Clean Air Act Amendments were passed, and Europe experienced a period of rising income and wages, that the EC became

EU trade

The purpose of this paper is to examine the PHH with respect to the EU. We start by defining the EU as the fifteen countries that joined by 1995, each country is included as part of the EU from the year that they join.7

Energy index and results for fossil fuel pollution havens

The first measure of industry dirtiness that we use is an energy intensity index similar to the one used by Kahn and Yoshino (2004), Eskeland and Harrison (2003), Kahn (2003), and Xing and Kolstad (2002). However, we use an index based on EU production. This index denotes those industries that are dirty in the sense that they use a lot of fossil fuels in the production process. Eskeland and Harrison (2003) and Kahn (2003) have shown that energy consumption may be used to proxy for pollution

Toxic index and results for toxic pollution havens

The second measure of industry pollution is the Toxic Release Inventory (TRI) index17

Discussion and conclusion

The overall results vary depending on the definition of industry dirtiness. There is evidence that the EU imported an increased amount of energy intensive goods from poorer nations during a period of more stringent environmental standards. This result is not consistent when we break down trading partners by membership in the OECD and regional definition. Apparently low income countries all together are driving the pollution haven effect, but that this is not a regional effect.

The results are

Acknowledgements

We would like to thank Per Fredriksson, John List, Jenny Minier, anonymous reviewers, and participants at the 2004 Association of Environmental and Resource Economists/Southern Economic Association meetings for their helpful comments and advice. The authors alone, however, are responsible for the views in this paper.

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