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Distribution neutral abatement policy in a model of trade and environment*

Published online by Cambridge University Press:  01 August 2009

MONICA DAS  and
SANDWIP K. DAS
MONICA DAS
Affiliation:
Assistant Professor, Skidmore College, 815 N Broadway, Saratoga Springs, NY 12866, USA. Tel: 518-5805096. Fax: 518-5805099. Email: [email protected]
SANDWIP K. DAS
Affiliation:
Visiting Professor, University of California, Riverside, USA. Email: [email protected]
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Abstract

The Pollution Haven Hypothesis (PHH) states that with weak environmental policies a country can create comparative advantage in the polluting sector. This paper formulates a 3-good-3-factor model where the abatement input is a pure intermediate good. In our model, the PHH as well as the neoclassical trade theorems are valid only when environmental policies are distribution neutral. Inspired by the US Clean Air Act, we develop and estimate a dynamic panel model. We find that US environmental policies are consistent with distribution neutrality. Our results indicate that lowering abatement standards in all industries is the only way the US can become a pollution haven. In the context of our model, the PHH has damaging implications for the world environment.

Type
Research Article
Information
Environment and Development Economics , Volume 14 , Issue 4 , August 2009 , pp. 457 - 472
Copyright
Copyright © Cambridge University Press 2009

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