How Should Developing Countries Cope with Pollution-Migration? An Extended Model of North-South Trade and its Numerical Simulation

Abstract

In recent years, with rapidly growing world trade and increasingly stricter environmental controls in developed countries, some enterprises have transferred heavily polluting plants to developing countries where environmental controls are more relaxed. This kind of pollution-“migration” is therefore threatening the environment of some developing or rather “emerging” countries. How to achieve a balance between economic development and environmental protection has already become an important issue that needs to be handled appropriately by developing countries when actively engaging in industrial migration. This paper extends the North-South trade model by introducing environmental pollution taxation to make an in-depth analysis. The calculation of the model leads to the conclusion that motivation of polluting companies in developed countries decreases when transferring to developing countries with a rising environmental pollution tax. Through numerical simulation, this paper finds the minimum environmental pollution tax rate that is likely to prevent industrial migration. When the tax is lower than this, pollution migration would not be stop; and if the tax is too high, it will hurt the economic development of developing countries. Hence, the minimum environmental pollution tax is the optimal tax rate for balanced development.