In this thesis, we first focus on the relationship between stringency of environmental regulation and some conventional indicators of economic development. We argue that this approach measures a more immediate relationship than previous studies that have concentrated on the relationship between income and emissions of pollutants. In a cross-sectional analysis, we find that the relationship between income and environmental policy stringency (EPS) is, to some degree, in line with previous findings that suggested an inverted-U type relationship between income and emissions, called Environmental Kuznets Curve (EKC). We also find that trade liberalization has a positive effect on EPS. The second part of our study evaluates the impact of EPS on international competitiveness in dirty industries. The analysis is done for three industries and only one of them yields evidence for the relocation of dirty industries to jurisdictions with lax regulation; the results were inconclusive overall.