Can Rich Countries become Pollution Havens?
Review of International Economics, Vol. 16, No. 4, pp. 627-640, August 2008
Posted: 23 Aug 2008
Date Written: 2008
This paper bridges the gap between two-country Ricardian trade models where differences in environmental policies create pollution havens in a poorer region with weaker pollution regulations, and 2x2 Heckscher-Ohlin models that predict under certain conditions that pollution havens may occur in a richer region with tighter regulations. By relaxing the Heckscher-Ohlin assumptions of factor price equalization and no specialization, we show how creation of pollution havens in either region is possible, due to the interplay of policy and factor-endowment motives. We also analyze the conditions for creating pollution havens in the cases of exogenous and endogenous environmental policy.
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