Trade and Specialisation in Pollution Intensive Industries: North–South Evidence

Abstract

The pollution haven hypothesis (PHH) and the capital-labour hypothesis (KLH) state that the relative level of a country's environmental regulations and capital and labour endowments determines its comparative advantage respectively. Since these hypotheses lead to conflicting predictions as to whether the North or the South will specialise in pollution-intensive production, this paper examines whether changes in trade and specialisation patterns allow us to distinguish between pollution haven and factor endowment effects. We employ a methodology that enables us to present North-South trade patterns over time and to identify those periods when trade patterns were consistent with either the PHH and/or the KLH as a foundation for undertaking more detailed econometric studies.