The relocation of more polluting industries in poorer countries due to gaps in environmental standards is known as the pollution haven effect, whereby the scale and the composition of output change across countries as a function of such gaps.
Changes in the composition of the output mix might translate into changes of comparative advantages across countries, as revealed by trade flows. This paper looks at the changes of bilateral revealed comparative advantages (RCAs) in the last decade between China and the major fourteen EU countries (EU14).
Using industry-level data on bilateral trade, air pollution, water pollution and several measures of environmental stringency, we find that, controlling for other factors that may have affected RCAs, such as labour costs, on average the EU14 countries have preserved or improved their advantages with respect to China in both water-polluting industries (such as paper and agro-based industries) and air-polluting industries (such as basic metals and chemicals), while they have lost competitiveness in the cleaner industries (such as office-and-computing machinery and fabricated metals).
