Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries

Abstract

We aim to study whether lax environmental regulations induce comparative advantages, causing\nthe least-regulated countries to specialize in polluting industries. The study is based on Trefler and Zhu’s\n(2005) definition of the factor content of trade. For the econometrical analysis, we use a cross-section of\n71 countries in 2000 to examine the net exports in the most polluting industries. We try to overcome three\nweaknesses in the empirical literature: the measurement of environmental endowments or environmental\nstringency, the possible endogeneity of the explanatory variables, and the influence of the industrial level\nof aggregation. As a result, we do find some evidence in favor of the pollution-haven effect. The\nexogeneity of the environmental endowments was rejected in several industries, and we also find that\nindustrial aggregation matters.