ABSTRACT
The integration of international markets over the course of the past two decades has received a great deal of attention in the popular press and the academic literature. While international markets have been connected through trade and investment for centuries, advances in transportation and communication technologies have rapidly advanced the pace at which global markets have become integrated. Offshoring, outsourcing, financial crisis and the effects of trade on development, growth and wages have become primary economic and political issues for many countries. Likewise, differences in environmental standards across countries and their influence on foreign direct investment (FDI) and trade has become an increasingly important topic. In particular, the idea that dirty polluting industries are locating in countries with the least restrictive environmental standards, known as the pollution haven effect, has become a focal concern. Most of the pollution haven literature has focused on and defined pollution havens based on pollution as a by-product of goods production in the country where products are produced. Indeed, many papers 1 that have estimated pollution haven effects have found that countries or regions with higher environmental standards can have a negative and statistically significant impact on FDI and net exports. Although pollution haven effects have been shown to be statistically significant, the overall effects on trade or FDI tend to be relatively small compared to other important factors such as wage differences, income or proximity to markets.
