Environmental Regulation and Revealed Comparative Advantages in Europe: Is China a Pollution Haven?

28 Pages Posted: 8 Dec 2010

Date Written: June 8, 2010

Abstract

The relocation of more polluting industries in poorer countries due to gaps in environmental standards is known as the pollution haven effect, whereby the scale and the composition of output change across countries. Changes in the composition of the output mix might translate into changes of comparative advantages across countries, as revealed by trade flows. This paper focus on this issue and looks at the changes of bilateral revealed comparative advantages (RCAs) in the last decade between China and the major fourteen EU countries (EU14). Using industry level data on bilateral trade, air pollution, water pollution and several measures of environmental stringency, we find that, controlling for other factors that may have affected RCAs, such as labor costs, on average our EU14 countries have kept or improved their advantages with respect to China in both water polluting industries (such as paper and agro-based industries) and air polluting industries (such as basic metals and chemicals), while they have lost competitiveness in the more clean industries (such as machinery and fabricated metals).

Keywords: revealed comparative advantages, environmental regulation, industrial pollution

JEL Classification: F14, F18

Suggested Citation

Marconi, Daniela, Environmental Regulation and Revealed Comparative Advantages in Europe: Is China a Pollution Haven? (June 8, 2010). Bank of Italy Occasional Paper No. 67, Available at SSRN: https://ssrn.com/abstract=1721426 or http://dx.doi.org/10.2139/ssrn.1721426

Daniela Marconi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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