The Pollution Haven Hypothesis: Significance and Insignificance
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Theory and intuition tell us that the imposition of stringent environmental policies by a given country will reduce its net exports of commodities produced using pollution-intensive industries. It is therefore surprising that many empirical studies of international commodity trade have failed to find evidence of this effect. This study offers a new, highly focused test of the pollution haven hypothesis, by investigating the link between international factor trade in coal and urban air concentrations of SO2. I find statistically significant evidence that countries with poor air quality do have higher net factor exports of coal; however, the magnitude of the impact is small, casting doubt on the economic significance of the pollution haven effect as a guide to policy.