Dirty Industry and Institutional Quality on Pollution: Evidence in Developing Countries

Environmental standards and trade such as double-edged knives and have mutually exclusive relationships. Economic openness and increased regulation of environmental awareness post-1960s created disputes and debates among stakeholders. The loose policy of dirty products in emerging countries brings their tendency to be a transitional place for developed countries. Therefore, environmental degradation is relatively preponderant in emerging countries. The purpose of this study is to analyze the patterns and effects of dirty and clean industry trade, institutional quality, and environmental policies on environmental pollution (pollution heaven) in developing countries. We use data sourced from the United Nations Commodity Trade Statistics Database (UN-COMTRADE), Wordbank, and other sources, 2000-2018, namely Argentina, Armenia, Belarus, Bolivia, Brazil, Bulgaria, Cambodia, Chile, China, Colombia, Costa Rica, Ecuador, El Savador, Ghana, Guatemala, India, Indonesia, Jordan, Kazakhstan, Korea, Lebanon, Malaysia, Mexico, Morocco, Pakistan, Paraguay, Peru, Philippines, Romania, Russian Federation, South Africa, Thailand, Tunisia, Turkey, Ukraine, and Vietnam. This study found different and partial evidence in the diversion of the pollution heaven, strong relationships in the wave of dirty product trade, and inconsistent and unequal comparative advantages in developing countries. Institution quality and environmental policy have a role in creating a clean environment. This study implies that strong environmental policies in developing countries, especially dirty industries, are needed.