regulations. Second, governments will have an incentive to distort national policies in such a way that they behave as a secondary trade barriers, which leads to a global loss of trade. According to Ederington and Minier, it is important to realize whether countries have the intention to use environmental policy as a barrier to protect their national industries or not. When environmental regulation is treated as an endogenous variable (instead of exogenous, like earlier researchers have done), the effect of environmental regulations on flows of trade can be significantly higher than earlier assumed. Furthermore, Cole and Elliot (2003) focused on the factor endowments of a country and referred to this as the capital-labor effect (hereafter KLE). The capital-labor effect means that the compositional changes in pollution are the result of differences in capital-labor endowments. Capital abundant countries will become pollution intensive, and labor abundant countries become relatively clean. Taylor and Copeland (2004) stressed out two hypothesis concerning trade liberalization and the environment. The pollution haven hypothesis asserts that environmental policy an important contributor is to the patterns of international trade (Taylor and Copeland, 2004). High income countries are assumed to be more concerned about the environment and therefore adopt strict environmental regulations. The hypothesis asserts that, as a result of trade openness, pollution production relocates from high income countries to low income countries with less strict environmental regulations. Low income countries become the ideal location for pollution-intensive industries to settle and their environments will suffer from deterioration (Taylor, 2005). However, little evidence has been found to support the hypothesis (Taylor and Copeland, 2004). Taylor and Copeland however did find strong theoretical support for there to exist at least an effect called the pollution haven effect, which states that stringency of pollution regulations does affect plant “the location and trade flows” (Taylor and Copeland, 2004, p. 4). They explained that, in addition to environmental regulation, other factors have an effect on patterns in trade too, and therefore the hypothesis might not exist but the effect does. has a different explanation for the relationship between free trade The factor endowment hypothesis and the environment (Taylor and Copeland, 2004). The commodity that is produced with capital is considered to be a dirty good, and the commodity that is produced with labor is considered to be
regulations. Second, governments will have an incentive to distort national policies in such a way that they behave as a secondary trade barriers, which leads to a global loss of trade. According to Ederington and Minier, it is important to realize whether countries have the intention to use environmental policy as a barrier to protect their national industries or not. When environmental regulation is treated as an endogenous variable (instead of exogenous, like earlier researchers have done), the effect of environmental regulations on flows of trade can be significantly higher than earlier assumed. Furthermore, Cole and Elliot (2003) focused on the factor endowments of a country and referred to this as the capital-labor effect (hereafter KLE). The capital-labor effect means that the compositional changes in pollution are the result of differences in capital-labor endowments. Capital abundant countries will become pollution intensive, and labor abundant countries become relatively clean. Taylor and Copeland (2004) stressed out two hypothesis concerning trade liberalization and the environment. The pollution haven hypothesis asserts that environmental policy an important contributor is to the patterns of international trade (Taylor and Copeland, 2004). High income countries are assumed to be more concerned about the environment and therefore adopt strict environmental regulations. The hypothesis asserts that, as a result of trade openness, pollution production relocates from high income countries to low income countries with less strict environmental regulations. Low income countries become the ideal location for pollution-intensive industries to settle and their environments will suffer from deterioration (Taylor, 2005). However, little evidence has been found to support the hypothesis (Taylor and Copeland, 2004). Taylor and Copeland however did find strong theoretical support for there to exist at least an effect called the pollution haven effect, which states that “the stringency of pollution regulations does affect plant location and trade flows” (Taylor and Copeland, 2004, p. 4). They explained that, in addition to environmental regulation, other factors have an effect on patterns in trade too, and therefore the hypothesis might not exist but the effect does. The factor endowment hypothesis has a different explanation for the relationship between free trade and the environment (Taylor and Copeland, 2004). The commodity that is produced with capital is considered to be a dirty good, and the commodity that is produced with labor is considered to be