Edited by Kevin P. Gallagher
Chapter 4: The Pollution Haven Hypothesis
Brian R. Copeland At the heart of the debate over how globalization aﬀects the environment is the question of whether trade and investment liberalization will cause pollution-intensive industry to concentrate in countries with relatively weak environmental policy. This is known as the pollution haven hypothesis. If the pollution haven hypothesis were correct, the level and incidence of global pollution would be aﬀected. The average pollution intensity of production would increase as polluting industry moved to those parts of the world with the weakest environmental standards. Moreover, an exodus of polluting industry from countries with stringent environmental policy could create a political backlash because of concerns about losses of jobs and investment. This could lead to a ‘race to the bottom’ as governments weaken environmental policy in response to such pressures. Because the stringency of environmental regulation is highly correlated with national income, polluting industry would tend to concentrate in relatively poor countries. This could exacerbate the eﬀects of pollution on health and mortality because poor countries are less able to aﬀord the infrastructure and medical treatments to protect their populations from the eﬀects of pollution. Increased environmental degradation could also lead to long-run income losses for those at the lower end of the income distribution in poor countries because of their dependence on natural capital. To assess the pollution haven hypothesis, it is useful to break it into two parts. First, we need to know whether more stringent environmental policy adversely aﬀects international competitiveness...
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