Pollution Haven Effect and Water Quality

Abstract

The pursuit of sustainable development requires balancing the objectives of FDI, Trade, economic growth and environmental protection. As competition becomes more global, people are concerned that relatively lenient environmental regulation and lax enforcement in developing countries give them a comparative advantage in pollution intensive goods. Lowering trade barrier may encourage a relocation of polluting industries from countries with strict environmental policy to those with lenient policy. These shifts may increase global pollution, as countries become reluctant to tighten environmental regulations due of their concerns over comparative advantage in international trade. Therefore, trade and FDI may encourage a relocation of polluting industries from countries with strict environmental policy to those with less stringent policy. We call this a pollution haven effect. The pattern of trade depends on which of these effects is stronger.1 The aim of this paper is test of the validation of the hypothesis of the pollution haven effect for the water pollution created by the different industries in the EU-South Asia region over 1980-2013.Our results show that this hypothesis is accepted in the EU-South Asia region.Also, our results show that trade liberalization decrease the BOD emission crated by chemical, food, metal, paper and pulp, textile, wood and other industries but it increases this emission crated by clay and glass industry in the region.