Trade Liberalization,Environmental Regulation And Trade Pattern

International trade influences environment,and environmental regulations can have trade consequences.Over the past decades,trade and environment has always be at the center among international trade debates and discussions.A lot of environmentalists and economists fear that the national differences in the stringency of environmental regulation can shift economic activities to jurisdictions with less stringent environmental regulations and thus leading to global environmental disaster.What’s more,opponents to free trade advocates that trade liberalization can accelerate such process.Based on these arguments,it has been quite popular that people require trade agreements and multilateral environmental agreements should be linked and countries must consider environmental consequences when making trade decision.Starting from the late 20th century,the depth and width of trade liberation and global cooperation has reached an unprecedented level,yet this same period has witnessed the worsening of global environmental condition,such as global warming,ozone hole and ocean contamination.Many people unconsciously treat such time correlation to causal relation and bring up ideas like pollution haven hypothesis,industrial flight,carbon leakage,etc.Thus,to examine the mechanism between trade liberalization,environmental regulation and trade pattern has practical significance.If we can verify that free trade will accelerate the shift of pollution intensive industries to less strict jurisdictions,then it can used to argue for environmental consideration when making trade deals such as green countervail on imported/exported goods.If not,the environment impact of free trade is likely to be far more benign.Based on that,this paper uses theoretical model,statistical analysis and empirical research to examine two questions:will strict environmental regulations shift economic activities(trade)to jurisdictions with less stringent environmental regulations(pollution haven effect);will trade liberalization shifts polluting economic activity toward countries that have less strict environmental standards.Constrained by the data source about environmental regulation,this paper chooses the U.S.as research object.In theoretical analysis section,we choose to decompose the question into two layers:how does environmental regulation affect trade pattern and what are the effects of trade liberalization.Combined with production fragmentation background,this paper chose to discuss the mechanism between environmental regulation and trade pattern based on the final goods perspective and intermediates perspective.When discussing the effects of trade liberalization,we borrowed the classic three effects,scale effect,composition effect and technology effect to analyze how trade liberalization affect industrial composition and scale.By discussion,we think technology effect is the most promising candidate to influence or even alter the mechanism between environmental regulation and trade pattern.In statistical analysis section,by summarizing the U.S.emission inventory data,environmental regulation data,manufacturing real output and import/export data,we observe the change of dirty industries’ share in the U.S.manufacturing and import.We find that the U.S.manufacturing is shifting toward "cleaner" industries,but it’s not replaced by imports from overseas.In empirical research section,we used SIC87 4-digit industrial panel data from 1980 to 2005 and strictly followed Grossman and Krueger(1991)’s factor intensity model.To control for heterogeneity,we introduced industry and year fixed effects.By using environmental regulation,tariff,the interaction term between average environmental regulation and tariff,industrial characteristics as explanatory variable,we studies their effect on the U.S.imports and net imports.As our results suggested,the coefficient for environmental regulation is positive but the coefficient for the interaction term is also positive,suggesting that compared to other industries,dirty industries are less sensitive to tariff reduction,which is the opposite of pollution haven hypothesis prediction.At last,this paper summarized our main results and provides several possible explanations as to why pollution haven hypothesis has not been proved.Future suggestions for research direction has also been provided.