Environmental regulation and the Pollution Haven Hypothesis: Do environmental regulation measures matter?

Abstract

This paper examines the how new manufacturing firms choose locations in response to the environmental regulations in Jiangsu, China. In particular, we utilize three representative measures of the environmental regulations to test the consistence of the Pollution Haven Hypothesis (PHH). The dramatic results indicate that different measures of environmental regulation lead to different conclusions of the PHH. However, firms' relocation patterns are common and consistent, i.e., new polluting firms are more likely to be driven by the government environmental mandates to northern Jiangsu, where the pollution abatement cost is high. This pattern is consistent with the industrial planning of the province, suggesting that local government may use environmental regulations to achieve economic objectives. More comprehensive and equitable policy design is thus recommended to address the problems of environmental equity in China.