A further inquiry into the Pollution Haven Hypothesis and the Environmental Kuznets Curve

Abstract

Empirical research on the relationship between economic growth and its impact on the environment often tests the Environmental Kuznets Curve (EKC), a hypothesis that rising national output leads to increases in pollution emissions until an economy reaches a certain size, and decreases thereafter. This paper addresses a branch of EKC literature focused on the role international trade plays in shaping this relationship. In particular, we test the Pollution Haven Hypothesis, which posits that emission reductions observed in developed nations are partly the result of shifting “dirty” production to developing nations with lax environmental standards. We estimate EKCs for seven oft-studied pollutants and find little evidence that pollution havens play a significant role in shaping the EKC. We also find that confidence intervals around EKC turning points are very wide, often including values well above the range of the data. This leads us to be skeptical of the optimistic view that economic growth naturally leads to improvements in environmental quality.