Vol. 1(2) SEP 2011 - SAVAP International

Academic Research International
ISSN: 2223-9553
Volume 1, Issue 2, September 2011
Second: In the newly industrialising nations, pollution is likely to go on increasing until per
capita incomes reach much higher levels than the turning point income levels of developed
nations. “That is, the empirically estimated Kuznets curves are not likely to be valid for the
projection of patterns of pollution for the developing countries”.
Esty and Porter (2005) also find that corruption is a significant causal factor of environmental
deterioration through pollution.
International trade
So far we have treated countries as if they were all self-contained and isolated. In fact all
countries engage in international trade. And this trade influences the economy, the affluence
and the environment of countries. And this leads us to a very contentious hypothesis – the
Pollution Haven Hypothesis (PHH). The argument here, based primarily on Dinda's paper,
and simplified, goes like this.
We can think of countries divided into two groups. On the one hand, high income countries
with considerable environmental regulation designed to limit environmental damage, and low
income countries where environmental regulation is at best rudimentary. Pollution intensive
production, for example, mining, is thus comparatively costly in high income countries. If we
assume a certain degree of trade liberalisation, there will then be some degree of relocation of
pollution intensive production from high income countries to low income countries.
Consequently pollution rises in lax regulation countries and falls in countries with stringent
environmental regulation. So on the global scale, the world's most pollution producing
industries locate in the countries with the lowest environmental standards with the result that
world pollution rises.
This hypothesis has obvious relevance to any discussion of the EKC relationship. For
supposing that some environmental indicator in a wealthy country shows the Kuznets curve
relationship over time, while this indicates a benefit for the country concerned, it may be
associated with a consequential increased environmental degradation in some poor country or
countries. Then at a global level, there is no environmental improvement.
Obviously the effects of international trade are much more complicated than this brief
introduction to the PHH portrays. For example, the relocation of ‘dirty’ industries is
associated with foreign direct investment and technology transfer which can stimulate
economic development in underdeveloped countries, assist governments there to improve the
efficiency of production and thus reduce pollution. Further, trade may raise income levels of
people in poorer countries which can lead to demands from the public for more effective
environmental protection as was mentioned in an earlier section. And Yandle et al appear to
me to conclude that in general, with developing countries, environmental prospects are better
in countries more open to international trade than countries closed to such trade.
As we said at the beginning, the Pollution Haven Hypothesis has proved to be very
contentious, and continues to be debated. And while there is clear evidence of the sort of
effect predicted by the hypothesis in some countries, this does not prove that the mechanism
producing the effect is the one stated by the PHH, which depends partly on degrees of
environmental regulation. Various other factors affect trade in ‘dirty’ goods, for example,
abundance of capital, or degree of government corruption.
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