Regulation, factor rewards, and international trade

Abstract

This paper develops an approach for incorporating regulation into the theory of production, distribution, and trade, using environmental regulation as an example. Four major conclusions emerge in the course of the analysis. 1. Production process regulation is equivalent in its effect on other cooperating factors to neutral technical regress (i.e. negative progress). 2. Specific unambiguous income redistribution consequences follow from such regulation. If commodity prices are held constant. the factor used relatively intensively in the non-regulated industry will gain absolutely in terms of both goods. 3. Unilateral or uncoordinated regulation destroys the link between uniform world commodity prices and identical factor proportions/factors prices across trading countries or regions. 4. If any factor of production is freely mobile across frontiers, the least differential regulation as between countries will entirely drive out the regulated industry from the more to the less regulated economy.

International Competition and Environmental Expenditures: Empirical Evidence from Indonesian Manufacturing Plants

“…Theoretical work has largely supported the first position: McGuire (1982) for instance portrays stricter environmental control in a Heckscher-Ohlin model as negative technical progress which makes the dirtier sector contract. A trade distortion results unless the difference in regulations reflects a different degree of externality.…”

Is there an environmental benefit to being an exporter? Evidence from firm-level data

“…The pollution haven hypothesis is now a cornerstone of the debate on globalisation and the environment. As formulated by Pethig (1976) and McGuire (1982) this hypothesis postulates that opening up to trade allows pollution-intensive industries to move to countries with weaker environmental regulations. This results in a race to the bottom in overall environmental standards and increased pollution levels.…”

Footloose and Pollution-Free

“…Neither of these methods has resulted in quantitatively significant or robust evidence that environmental regulations influence trade patterns. However, given the underlying logic of the pollution haven hypothesis, researchers continue to attempt to explain why effects of environmental regulation on 1 See Pethig (1976), Siebert (1977), McGuire (1982), and Copeland and Taylor (1994). competitiveness are so difficult to detect.…”