Pollution Haven Hypothesis
The pollution haven hypothesis, or pollution haven effect, is the idea that polluting industries will relocate to jurisdictions with less stringent environmental regulations. Empirical studies of the phenomenon have been hampered by the difficulty of measuring regulatory stringency and by the fact that stringency and pollution are determined simultaneously. Early studies based on cross sections of data found no significant effect of regulations on industry locations. Newer studies that use panels of data to control for unobserved heterogeneity or instrumental variables to account for simultaneity have found statistically significant, reasonably sized effects.
KeywordsEnvironmental regulations Fixed-effects models Free trade Heckscher–Ohlin trade theory Inter-jurisdictional competition Not in my backyard (NIMBY) Pollution abatement costs and expenditures Pollution haven hypothesis Porter hypothesis Protectionism Race to the bottom Regulatory stringency Tariffs Unobserved heterogeneity
JEL ClassificationsF1 F2 H73 Q5
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