Increasing international fragmentation of production has reinforced fears that industrial activity may flee to countries with laxer environmental policies – in line with the so-called Pollution Haven Hypothesis (PHH). If PHH effects are strong, domestic responses to environmental challenges may prove ineffective or meet strong resistance. Using a gravity model of bilateral trade in manufacturing industries for selected OECD and BRIICS countries over 1990s-2000s, this paper studies how exports are related to national environmental policies.
- Environmental policies are not found to be a major driver of international trade patterns, but have some significant effects on specialisation.
- More stringent domestic policies have no significant effect on overall trade in manufactured goods, but are linked to a comparative disadvantage in “dirty” industries, and a corresponding advantage in “cleaner” industries.
- The effects are stronger for the domestic component of exports than for gross exports, yet notably smaller than the effects of e.g. trade liberalisation.