| It has been suggested that inter-country differences in environmental compliance costs provide an incentive for "dirty industry" migration. This phenomenon describes the movement of heavy polluters from industrialized countries, where firms are subject to relatively higher environmental regulation costs, to less developed countries, where standards, and therefore compliance costs, are lower. The current literature has not always provided a clear picture of this problem. The purpose of this research is to investigate the significance of differences in environmental compliance costs between countries and its impact on plant location and output decisions.;The theoretical model in this dissertation assumes that production is carried out by a multi-plant firm, where plants are located in different countries. Profit-maximization requires that plants be located such that the marginal cost in each country is equal to the marginal revenue of the output in the world market.;Given this framework, the empirical work of this dissertation estimates the significance of "dirty industry" migration in the wood pulp industry. After accounting for international differences in various resource costs, the results indicate that environmental compliance costs, as proxied by observed pollution levels, may be a significant determinant of observed net export patterns. These results are consistent with the hypothesis of "dirty industry" migration. Implications are drawn for policy makers in both developed and developing countries that draft trade and environmental legislation. |
