Trade Agreements and the Environment: An Industry Level Study for NAFTA

✍ Scribed by MacDermott, Raymond

• Book ID: 127156920
• Publisher: Walter de Gruyter GmbH & Co. KG
• Year: 2006
• Tongue: English
• Weight: 332 KB
• Volume: 6
• Category: Article
• ISSN: 2194-5659
• DOI: 10.2202/1524-5861.1128

✦ Synopsis

The aim of this paper is to explore two apparently unrelated issues – regional trade agreements and the pollution-haven hypothesis. They are linked by the belief that the elimination of trade barriers will further encourage firms already considering a move to countries with weak environmental regulations. Given the proliferation of trade agreements, as well as the movement of environmental issues to the forefront of our political process, a better understanding of the policy effects is needed. We apply a test equation loosely based on the gravity model to a data set of industry-level foreign direct investment from the Unites States to 23 partner countries from 1982 to 1999. Using pollution emissions as a proxy for environmental stringency, we find strong evidence in support of the pollution-haven hypothesis. We also find the NAFTA increase outflows of U.S. FDI. Finally, the NAFTA appears to encourage the pollution-haven effect.