Are emerging economies a pollution haven? a new era in dirty industrial trade

Economics Department, Faculty of Economics & Business, Sebelas Maret University, Surakarta

^* Corresponding author: shohibulana@staff.uns.ac.id

Abstract

The hypothesis that international trade causes pollution and environmental damage is still debated and creates heat rather than light. Right extremists argue that trade encourages investment and economic growth while accretion benefits cover the environmental cost. Other extremists claim that international trade is a pollution transmitter (flight industry) from developed countries to countries with laxer policies and low costs. It creates a world pollution haven through the production and trade of dirty industries, especially in countries with abundant factors and low costs. This study aims to investigate the existence of pollution havens as a source of environmental pollution in developing economies. This research method uses a unit root test to estimate the presence of pollutants in each country. This study also employs the dirty industry's trade balance index (TBI) for 44 countries worldwide. The results of this study show that most emerging economies tend to be pollution havens (PH) of developed countries. This finding provides different effects on the pollution haven effect (PHE): full, partial, and clean PH. The implication is that strong environmental policies are necessary for developing economies through a commitment to implementing the SDGs. In addition, global conformity, technological innovation, and strong institutions are required to achieve a clean economy and sustainable development.