Pollution haven or halo effect? A comparative analysis of developing and developed countries

Abstract

In an effort to improve air quality, developed countries are stepping up their environmental measures. On the other hand, the level of environmental measures remains low for developing countries. This difference can turn these regions into a pollution haven. The aim of this article is to study the direct and indirect impact of trade openness on environmental degradation in 31 developed countries and 100 developing countries over the 1980–2016 period. Using the system Generalized Moments Method (GMM), this study reveals that the pollution haven hypothesis (PHV) is considered only for developing countries, while the pollution halo hypothesis (PHL) is considered for developed countries. The empirical results do not valid the hypothesis of Environmental Kuznets Curve (EKC) in developing countries, but do valid it in developed countries. It can be said that an increase in trade and foreign direct investment increases the developed countries’ polluting projects which are destined for the developing countries, thus pushing the developed countries to achieve emission reductions at the expense of the developing countries. It is recommended to continue to attract such entries while putting in place mechanisms and instruments to reduce carbon dioxide emissions within the framework of rigorous environmental policies.