UNMASKING THE POLLUTION HAVEN EFFECT*

Authors

  • Arik Levinson,

    1. Georgetown University, U.S.A.; University of Calgary, Canada
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  • M. Scott Taylor

    1. Georgetown University, U.S.A.; University of Calgary, Canada
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    • 1

      This research is part of a project funded by the National Science Foundation grant #9905576. The authors are grateful to Wolfgang Keller, John List, Rod Ludema, Dan Millimet, and Michael Rauscher for comments, and to Akito Matsumoto and Sjamsu Rahardja for research assistance. Taylor thanks the Princeton Economics Department for its hospitality during the time he worked on this article, and the Vilas Trust at the University of Wisconsin for funding. Please address correspondence to: Arik Levinson, Economics Department, Georgetown University, 3700 O Street, NW, Washington, DC 20057, USA. Telephone: 202-687-5571. E-mail: aml6@georgetown.edu.


  • *

    Manuscript received July 2004; revised September 2006.

Abstract

We use theory and empirics to examine the effect of environmental regulations on trade flows. A simple model demonstrates how unobserved heterogeneity, endogeneity, and aggregation issues bias standard measurements of this relationship. A reduced-form estimate of the model, using data on U.S. regulations and trade with Canada and Mexico for 130 manufacturing industries from 1977 to 1986, indicates that industries whose abatement costs increased most experienced the largest increases in net imports. For the average industry, the change in net imports we ascribe to regulatory costs amounting to 10% of the total increase in trade volume over the period.

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