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The Stricter a Country’s Environmental Regulations, the Better Electric Cars Sell​
View : 1956 Date : 2025-10-17 Writer : PR Office

<(From Left) Professor Narae Lee, Professor Heather Berry, Professor Jasmina Chauvin, Porfessor Yuxi Lance Cheng>

A joint international research team has challenged the traditional 'pollution haven' hypothesis—which suggests that companies relocate production to countries with lax environmental regulations—by proposing a new strategy that companies should seek a 'green haven' instead. This finding is attracting attention.

KAIST (President Kwang Hyung Lee) announced on the 17th of October that the research team led by Professor Narae Lee of the KAIST College of Business, through an international joint study with Professors Heather Berry and Jasmina Chauvin of Georgetown University in the U.S., and Professor Lance Cheng of the University of Texas, revealed that 'green products, such as electric vehicles, are more competitive when menufactured in countries with strict environmental regulations.'

'Green products' are eco-friendly products that cause less environmental pollution, including energy-efficient home appliances that consume less electricity, and eco-friendly vehicles (electric cars, hybrid cars) that reduce pollution.

For a long time, the dominant explanation was that multinational corporations primarily concentrated production and export in countries with weak environmental regulations. However, with the recent strengthening of climate change response and ESG (Environmental, Social, and Governance) management, the global trade of green products is rapidly expanding. This has led to new patterns that are difficult to explain with existing theories alone.

The joint research team precisely verified trade patterns by analyzing data from 'UN Comtrade,' the global trade database operated by the UN, covering 92 importing countries, 70 exporting countries, and approximately 5,000 products from 2002 to 2019.

<Figure1. Changes in National EPI Index and Export Volume According to Product Characteristics>

The result confirmed a typical pollution haven effect: the overall trade volume decreased when environmental regulations were strengthened. However, for green products only, trade was found to increase. In other words, the stricter the environmental regulations, the more active the export and sourcing of green products became.

<Figure2. Changes in Global Sourcing According to Product Characteristics>

This shows that companies are not simply moving to regions with loose regulations to save on production costs. Instead, they prefer countries with strong regulations to secure transparency and legitimacy in the production and transaction process of eco-friendly products.

This effect was particularly prominent in the final consumer goods sector, which directly interacts with consumers—i.e., smartphones, clothing, food, cosmetics, home appliances, and automobiles that we use daily—and the tendency was even stronger for products exported to countries with active environmental movements or NGO activities.

Professor Lee emphasized, "This study shows that global supply chains can no longer be explained solely by cost efficiency, and that a company's environmental legitimacy determines its strategic choices." She added, "Strong environmental policies do not restrict corporate activities; they can become the foundation for enhancing the competitiveness of green products."

The research findings were published on September 1st in the Journal of International Business Studies (JIBS), the top academic journal in the field of international business.


This research was made available for free viewing through KAIST's Open Access publication support, and it is expected that the research results will be utilized in academia and policy-making.

 

college of businessgreen productselectric vehiclesenvironmentalregulations Narae Lee College of Business College of Business
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