Effect of a Differentially Applied Environmental Regulation on Agricultural Trade Patterns and Production Location: The Case of Methyl Bromide

It has been hypothesized that differentially applied environmental regulations create pollution havens, as firms will choose to invest in countries with lax environmental standards. Using a theoretical model of pest control adoption and an empirical spatial equilibrium model, we examine one such environmental regulation, a U.S. ban on methyl bromide, to determine if an agricultural pollution haven will be created in Mexico. Alterations in agricultural production location, trade patterns, and methyl bromide use are determined. We find that, under the assumptions held, Mexico will not dramatically increase its use of methyl bromide following the ban. Sensitivity analysis to this result is conducted.