Pollution Haven and Corruption Paradise

42 Pages Posted: 13 Jun 2011 Last revised: 12 Oct 2016

See all articles by Fabien Candau

Fabien Candau

Université de Pau et des Pays de l'Adour

Elisa Dienesch

Sciences Po Aix; AMU-AMSE

Date Written: October 4, 2016


In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting firms in countries with lax environmental regulation (called pollution havens). Via a simple theoretical extension from the Economic Geography literature, we characterize the main features of pollution havens: a good market access to high-income countries and corruption opportunities. Using structural and reduced-form estimations, we analyse these determinants by exploiting a unique database on the number of European affiliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also find that corruption in these countries lowers environmental standards, which strongly attract polluting firms: a 1% increase in this indirect effect of corruption fuels relocation by 0.28%. We test the economic significance of these empirical findings via simulations. The protection of the European market (e.g., a carbon tax on imports) to stop relocations to pollution havens must be high (a decrease of the European market for Morocco and Tunisia equivalent to 13%) not to say prohibitive (31% for China).

Keywords: FDI, Environmental Regulation, Europe, Trade

JEL Classification: F12; Q5; Q53

Suggested Citation

Candau, Fabien and Dienesch, Elisa and Dienesch, Elisa, Pollution Haven and Corruption Paradise (October 4, 2016). Available at SSRN: https://ssrn.com/abstract=1864170 or http://dx.doi.org/10.2139/ssrn.1864170

Fabien Candau (Contact Author)

Université de Pau et des Pays de l'Adour ( email )

Avenue du Doyen Poplawski
64000 Pau

Elisa Dienesch

Sciences Po Aix ( email )

25 rue Gaston de Saporta
Aix-en-Provence Cedex 1, 13625
13625 (Fax)

AMU-AMSE ( email )

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
Aix-en-Provence, Bouches-du-Rhône 13080

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