FDI, Trade and Environmental Policy

The pursuit of sustainable development requires balancing the objectives of FDI, Trade, economic growth and environmental protection. Achieving a balance between these oftenconflicting priorities is difficult enough at the national level, where competing interests are at least grounded in a common environmental, social and economic context. At the international level, where different countries have vastly different circumstances and priorities, it is significantly harder. One of the many ways in which this challenge manifests itself in the real world is in the conflict between the desire to promote trade by reducing non-tariff barriers and the desire to protect the environment and health through the use of technical regulations and standards. As competition becomes more global, people are concerned that relatively lenient environmental regulation and lax enforcement in developing countries give them a comparative advantage in pollution intensive goods. Lowering trade barrier may encourage a relocation of polluting industries from countries with strict environmental policy to those with lenient policy. These shifts may increase global pollution, as countries become reluctant to tighten environmental regulations due of their concerns over comparative advantage in international trade. Therefore, trade and FDI may encourage a relocation of polluting industries from countries with strict environmental policy to those with less stringent policy. We call this a pollution haven effect. The effects of trade liberalization on the environment depend on the environmental policy regime. The pattern of trade depends on which of these effects is stronger.1The aim of this paper is test of the validation of the hypothesis of the pollution haven effect for the water pollution created by the different industries in the EU-South Asia region.

Keywords:

FDI , Trade , Environment , Pollution Haven effect , South Asia Countries