Are the Central East European Countries Pollution Havens?

• Date: 01 March 2017
• Author: Inmaculada Martínez-Zarzoso,Anca M. Voicu,Martina Vidovic
• DOI: 10.1177/1070496516670196
• Published date: 01 March 2017
• Subject Matter: Articles

Article

Are the Central East

European Countries

Pollution Havens?

Inmaculada Martı

´nez-Zarzoso

1

,

Martina Vidovic

2

, and Anca M. Voicu

2

Abstract

The aim of this article is to investigate the relationship between environmental

stringency and intra–European Union (EU) trade flows. Two main hypotheses are

tested. First, we test whether the stringency of a country’s environmental regulations

may result in pollution havens. Second, we test whether the results differ by industry

and by the EU membership tenure (EU-15 vs. the newly added Central East European

Countries). An augmented gravity model is estimated using panel data for 21 coun-

tries during the period from 1999 to 2013 for the full sample and also separately for

the Central East European Countries and the EU-15 members. Our results show

weak support for the pollution haven hypothesis for some dirty industries, mainly for

net exports from western EU countries to the rest. Instead, support for the ‘‘Porter

hypothesis’’ is found for trade in clean goods.

Keywords

pollution haven hypothesis, Porter hypothesis, European Union, trade flows

The so-called pollution haven hypothesis (PHH) predicts that trade liberaliza-

tion will cause pollution-intensive industries to migrate from countries with

stringent environmental regulations to countries with lax environmental

regulations. The latter countries may have a comparative advantage in dirty

goods and consequently attract foreign investment in their polluting sectors.

1

Whether such pollution haven ef‌fects (PHE) exist is of great importance in the

Journal of Environment &

Development

2017, Vol. 26(1) 25–50

!The Author(s) 2016

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DOI: 10.1177/1070496516670196

journals.sagepub.com/home/jed

1

Department of Economics, University of Go

¨ttingen and University Jaume I in Castello

´n Platz der

Go

¨ttinger, Go

¨ttingen, Germany

2

Rollins College, FL, USA

Corresponding Author:

Martina Vidovic, Rollins College, 1000 Holt Avenue, Winter Park, FL 32789-4499, USA.

Email: mvidovic@rollins.edu

present policy debates, since the existence of such ef‌fects could be a potential

problem in negotiating integration agreements. In this sense, and concerning the

most recent European Union (EU) enlargement, worries have been raised that

the Central East European Countries (CEECs) could become pollution havens

for dirty industries in Europe. This represents a concern particularly if the

CEECs continue with policies of softer environmental regulations.

To the best of our knowledge, Jug and Mirza (2005) are the f‌irst authors who

investigate the PHE in the European continent. They use a structural gravity

equation and employ environmental expenditure data as the environmental

stringency variable. They also follow the recent literature and argue that

environmental regulations and trade are endogenous to each other. Since their

investigation covers a brief time (e.g., 1996–1999), it cannot evaluate whether

there has been a change in the interaction between trade f‌lows and environmen-

tal regulation following the recent accession of CEECs into the EU in 2004 and

2007.

Using data from 1999 to 2013, our article aims to investigate the relationship

between environmental stringency and export f‌lows in the EU in order to

determine whether the recent accessions of the CEECs into the EU and the

subsequent changes in the regulatory framework of new members have af‌fected

intra-EU trade f‌lows.

We test two main hypotheses. First, we test whether the stringency of a

country’s environmental regulations results in pollution havens or, on the con-

trary, it results in better export performance. Second, we test whether the results

dif‌fer by industry (dirty vs. clean) and by the EU membership tenure (EU-15 vs.

newly added EU member countries in 2004 and 2007). The question of whether

more stringent environmental regulations harm or foster trade is relevant to the

current debate regarding the PHH and its focus on the EU enlargement. The

later has not yet been studied using disaggregated trade data and distinguishing

between trade in dirty goods and trade in clean goods.

The remainder of the article is organized as follows; The following section

presents the underlying theories and the related empirical studies on the rela-

tionship between trade and the environment. The third section outlines the the-

oretical assumptions behind the gravity model of trade, describes the data and

the variables used, as well as our empirical strategy. The fourth section presents

the main results, and the f‌inal section provides our conlcusions.

Literature Review: The Trade and the

Environment Debate

There is a close and complex relationship between trade and the environment,

and the ef‌fects of trade liberalization on the environment are rather mixed. This

observation has led scholars to typically decompose the environmental impact

of trade liberalization into the scale, technique, and composition ef‌fects

26 Journal of Environment & Development 26(1)