The Impact of Environmental Regulations on Manufacturing Outsourcing: Re-examining the Pollution Haven Effect in Global Value Chain

Abstract

As countries worldwide attempt to address a series of global and domestic environmental challenges, the pollution haven effect remains an ongoing concern among trade and environment researchers and policymakers. This
paper examines the pollution haven effect in the context of global value chains using inter-country input-output data at the manufacturing industry level from 1995-2009. This paper pays special attention to the issue of “doublecounting” caused by intermediate trade. The analysis utilizes two outsourcing measures and two revealed comparative advantage measures appropriate for analyzing global value chains. I propose women’s political power as a novel instrumental variable to address the endogeneity of environmental regulation. Regression results show that more stringent environmental policies are not a significant determinant of manufacturing outsourcing and competitiveness in global value chains. At the same time, women’s political power is associated with more stringent environmental
policies.