"Green” Side of Export Competitiveness in Emerging Countries

Abstract

There is an intense debate on the relationship between trade and environmental performance, which is carried out on the theoretical backdrop of the trade and growth nexus. While there is theoretical and empirical support for positive effects of increased trade on economic growth, other strands of the literature focus on the positive and negative impacts of trade on the environment and, finally, the effect of environmental policies on trade and competitiveness. These arguments are incorporated in theoretical models such as the Pollution Haven Hypothesis, the Porter Hypothesis or the Environmental Kuznets Curve. The Pollution Haven Hypothesis maintains that polluting industries are shifting from developed to developing countries. In order to circumvent the strict environmental regulations, companies relocate their production in countries with less-stringent environmental regulations. Consequently, developed countries import dirty products from the developing countries with the implication that some countries in the latter group attain comparative advantage in dirty products. In this study, the link between the comparative advantage of dirty industries and environmental performance in 25 emerging countries is explored. The period of analysis covers the years between 2002-2012. The paper first focuses on the changes in the revealed comparative advantage (RCA) of dirty industries in emerging countries in relation to developed countries. The countries, which have a comparative advantage in dirty industries are expected to have lax environmental regulations. Subsequently, we explore the effects of RCA in these dirty industries environmental quality in emerging countries. The results vary from one industry to another.