Impact Of Greater Trade Liberalisation On Influencing A...

Introduction This research proposal is going to assess the impact of greater trade liberalisation on influencing a pollution heaven effect. By using the implementation of the North American Free Trade Agreement (NAFTA) as an indicator for reducing the costs of moving production, we can determine whether the given the opportunity of greater trade liberalisation, Canada would move pollution intensive production to the less environmentally regulated country of Mexico. A difference-in-differences approach is suggested in order to compare the pollution haven effect on Canada, the US and Mexico in comparison with non-NAFTA countries. 1. Aim The relationship between trade liberalisation and the existence of pollution havens have brought about†¦show more content†¦This can be seen through trade liberalisation that occurs when countries open up to greater free trade and remove trade barriers or tariffs. This occurred in 1994 with the North American Free Trade Agreement (NAFTA). This agreement broke down trade barriers between the US, Mexico and Canada in order to create one of the world’s largest free trade areas. Canada and the United States are both highly developed industrial nations that have high levels of environmental regulation and enforcement of such. Whereas Mexico, as a developing nation, stands in contrast to them. Although some point out that Mexico has comprehensive law providing strict environmental protection which can be considered just as stringent as Canadian or American legislation. Due to the fact that Mexico lacks the financial resources to fully enforce these regulations it therefore is considered to be more lax in regards to environmental regulations. In this sense Mexico will act as the Pollution Haven due to weaker environmental policy enforcement compared to the US and Canada, which are similar in terms of environmental policy implementation and enforcement. Stern (2002) has found that Mexico had approximately twice the level of sulpur emissions compared to the US, when taking account of the level of income and the input–output structure of the economy. The