THE CHALLENGE OF ANALYSING THE IMPACT OF ENVIRONMENTAL POLICY ON COMPETITIVENESS

Despite almost forty years of studies, the debate persists over whether stringent environmental policies negatively affect competitiveness, and whether this effect is strong enough to create “pollution havens” in developing countries. In this paper, some of the policy issues that inspired much of the literature on environmental regulation and competitiveness are described and the main empirical studies are examined. The focus of this paper is to analyse one of the main problem in the empirical testing of the disputed existence of a pollution haven effect (PHE): the measurement of environmental regulatory stringency. By analysing two Chinese provinces, this study shows that differences in institutional development (and thereby in the enforcement of environmental policies) are not properly captured by the proxies of environmental stringency, which are commonly utilised in applied studies. These esults challenge the validity of existing empirical PHE tests.