The pollution haven hypothesis - Trade and the Environment - page 52

Renewable resources
To illustrate how environmental capital can be critical for determining trade patterns in
renewable resource industries, consider the example of

fi sheries. As is well known, open

access fi sheries are vulnerable to depletion because of stock externalities. The fi sh stock

needs to be maintained at a healthy size so that it produces more fi sh for harvest in the

future. But in an open access fi shery, a fi sher who chooses to invest in the fi sh stock by

reducing his or her harvest rate will not reap the full bene fi ts of that investment because

the sh will be available for others to catch. Hence theory predicts underinvestment in

conservation of the stock.
Now consider the analogue of the pollution haven hypothesis. Suppose there are two
countries, North and South. Assume that North has stringent conservation policy, and
that South's

fi

shery is open access. As in the pollution haven models discussed above, we
assume the countries are otherwise identical to highlight the role of conservation policy
in a

fi

ff ecting trade patterns. Would we expect trade liberalization to shift fi shing e ff ort from

North to South and exacerbate the depletion of South's renewable resources?
Chichilnisky (1994) and Brander and Taylor (1997) studied this scenario. The result
depends on the strength of the demand for

fi sh. If the demand for fi sh is low, so that the

fi sh stock in South is just mildly depleted prior to trade, then the logic of the pollution

haven hypothesis applies. North's stringent conservation policy increases harvest costs,
and so South has a comparative advantage in fi shing. Trade liberalization causes South's

fi shing industry to expand and puts increased pressure on its resource. Trade therefore

increases environmental degradation in South. Suppose, however, that the demand for

fi sh

is high. In this case, South's shing pressure prior to trade and

its stock will be severely depleted. Because of its depleted environmental capital (

fi shery will have faced huge fi

fi sh

stock), its sh harvest rates will be low. North, on

the other hand, with its stringent conservation policy, will have been able to maintain a
healthy

fi shing costs will be relatively high and fi

fi sh stock despite the high demand for fi sh. Hence when trade opens, North's rel-

atively abundant environmental capital ( fi sh stock) will give it a comparative advantage

in shing. Hence in this case a pollution haven type of result does not obtain - it is the

high-regulation country that ends up exporting

fi

fi sh.

Conclusion
Fears that trade liberalization will cause an exodus of polluting industry to poor coun-
tries with weak environmental policy appear to be unfounded. Although there is evidence
that stringent environmental policy does reduce competitiveness in industries intensive in
production-generated pollution, there is no evidence that it is the most important factor
a ows.

That being said, there are still a number of channels via which pollution-intensive pro-
duction could shift from rich to poor countries. If pollution policy were to tighten up at
a faster rate in rich countries than in poor countries, then the competitiveness hypothesis
implies that we would expect to see a gradual relocation of polluting production to poorer
countries. Industries that are both polluting and intensive in the use of unskilled labor will
expand in developing countries as trade liberalization occurs: weak environmental policy
reinforces an already existing comparative advantage in such cases. And capital accumu-
lation in developing countries will stimulate the growth of capital-intensive polluting
industries.

ff ecting trade and investment fl