Have Emerging Economies Attracted Polluting Industries from Advanced Countries? Evidence of The Pollution Haven Hypothesis from A Dynamic Shift-Share Analysis

Abstract

This paper tests the validity of the pollution haven hypothesis (PHH) by finding out whether the exports produced in the so-called polluting industries in emerging countries have displaced those of advanced countries in the OECD market. The study calculates two export performance indices (the relative change of market share, and the relative change of competitiveness) in polluting industries through a modified dynamic version of the shift-share analysis, and compares the average indices of emerging economies to those of advanced countries. The study covers 14 countries including seven emerging economies (Brazil, China, India, Indonesia, Russia, South Africa, and Turkey) and seven advanced countries (Canada, France, Germany, Italy, Japan, United Kingdom, and the United States). A 20-year period (1997-2016) is distinguished between two 10-year periods (1997-2006 and 2007-2016) for also capturing the temporal variations of the potential replacement effect. Polluting industries are categorized by their impacts on environmental pollution as wood/paper products, chemicals, and minerals. Findings provide some support for the PHH hypothesis that in spite of the gradual declines in the group of advanced countries that have been implementing tight anti-pollution legislation, the emerging economies with relatively lenient environmental regulations have increased their export market share and export competitiveness in the relevant polluting industries for both periods.