Pollution havens or competitive advantage? Evidence from South Asia-OECD trade in polluting industries

This study investigates whether South Asian countries have become pollution havens for industrial exports to OECD markets. Using highly disaggregated manufacturing trade data, it applies the New Weighted Comparative Advantage index and an Augmented Gravity Trade Model. The results indicate that compositional and structural effects have enabled South Asian countries to build comparative advantages in several polluting industries. Employing robust econometric methods, including Newey-West, quantile regression, causality analysis, and IV/2SLS estimation, the study rejects the pollution haven hypothesis in the context of South Asia-OECD trade. The findings support mainstream theories emphasising the trade-offs between environmental regulation stringency and the competitiveness of polluting exports. They also highlight the importance of examining industry-level heterogeneity when designing environmental and trade policies. Policymakers can draw on these insights to better understand how comparative advantage in polluting industries evolves and how environmental policies shape trade dynamics.