Are the Central East European Countries Pollution Havens?

Abstract

The aim of this article is to investigate the relationship between environmental stringency and intra-European Union (EU) trade flows. Two main hypotheses are tested. First, we test whether the stringency of a country's environmental regulations may result in pollution havens. Second, we test whether the results differ by industry and by the EU membership tenure (EU-15 vs. the newly added Central East European Countries). An augmented gravity model is estimated using panel data for 21 countries during the period from 1999 to 2013 for the full sample and also separately for the Central East European Countries and the EU-15 members. Our results show weak support for the pollution haven hypothesis for some dirty industries, mainly for net exports from western EU countries to the rest. Instead, support for the Porter hypothesis is found for trade in clean goods.