Abstract
There is considerable public concern that globalization — the liberalization of trade and capital flows — leads to policy competition between governments, which in the context of environmental policy may induce governments to set environmental policies (environmental dumping) that are too lax in order to protect their international competitiveness. It is further argued that this incentive is particularly strong when firms are footloose so that governments may worry about ‘capital flight’, and multinational firms are particularly prone to such footloose behaviour. The fear of environmentalists is that competition between governments to retain or attract such footloose firms is thought to trigger a ‘race-to-the-bottom’ in environmental policies. In the NAFTA debate the possibility of firms/plants relocating from the US to Mexico was an issue and a similar concern is expressed about the enlargement of the EU to include Eastern European countries. To counteract such incentives for environmental dumping it is often suggested that agencies such as the European Union should seek to harmonize environmental policies of member states or at least set ‘minimum standards’ for environmental policies.
OECD Environment Directorate and OECD Economics Department, respectively. We would like to thank useful comments from the participants at EIIW Conference on Economic Globalisation and International Organisations Potsdam, 4–7 December 1997 and, in particular, Hans-Georg Petersen. The opinions expressed in this paper are those of the authors, and do not necessarily reflect the views of either the OECD Secretariat or any OECD Member country.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
BHAGWATI, J. (1996), The Demands to Reduce Domestic Diversity among Trad- ing Nations, in J. Bhagwati and R. Hudec (eds.) Chapter 1
BHAGWATI, J. and HUDEC, R. (1996) (eds.), Fair Trade and Harmonisation, MIT Press, Cambridge, Mass
BOYER, M. and LAFFONT, J-J. (1996), Toward a Political Theory of Environmental Policy, Nota do Lavoro 56. 96, FEEM, Milan
CROPPER, M. and OATES, W. (1992), Environmental Economics: A Survey Journal of Economic Literature, 30, p. 675–740
Feenstra, T. (1998), Environmental Policy Instruments and International Rivalry - A Dynamic Analysis, Tilburg University
FREDERIKSON, P. (1997a), The Political Economy of Pollution Taxes in a Small Open Economy, Journal of Environmental Economics and Management, 33, p. 44–58
FREDERIKSON, P. (1997b), Why Don’t Environmental Regulations Influence Trade Patterns?, mimeo, World Bank
GROSSMAN, G. and KRUEGER, A. (1993), Environmental Impacts of a North American Free Trade Agreement, in Garber, P. (ed.), The Mexico-US Free Trade Agreement, MIT Press, Cambridge, Mass
GROSSMAN, G. and MAGGI, G. (1998), Free Trade versus Strategic Trade: A Peek into Pandora’s Box, CEPR Discussion Paper 1784, London
HILLMAN, A. and URSPRUNG, H. (1992), The Influence of Environmental Concerns on the Political Determination of Trade Policy, in: Anderson, K. and Blackhurst, R. (eds.), The Greening of World Trade Issues, Harvester- Wheatsheaf, HemelHempstead, p. 195–220
HILLMAN, A. and URSPRUNG, H. (1994), Greens, Supergreens and International Trade Policy: Environmental Concerns and Protectionism, in: Carraro, C. (ed.), Trade, Innovation, Environment, Dordrecht: Kluwer, p. 75–108
HOEL, M. (1997), Environmental Policy with Endogenous Plant Locations, Scandinavian Journal of Economics, 99 (2), p. 241–259
JOHAL, S. and ULPH, A. (1998), Tying Governments’ Hands: Why Harmonisation of Environmental Policies May Be Desirable, Southampton Discussion Paper in Economics and Econometrics 9802
KANBUR, R., KEEN, M., van WIJNBERGEN, S. (1995), Industrial Competitiveness, Environmental Regulation and Direct Foreign Investment, in: Goldin, I. and Winters, A. (eds.), The Economics of Sustainable Development, Paris, OECD, p. 289–301
KNOGDEN, G. (1979), Environment and Industrial Siting, Zeitschrift fur Umweltpolitik
LEEBRON, D. (1996), Lying Down with Procrustes: an Analysis of Harmonisation Claims, in: BHAGWATI, J. and HUDEC, R. (eds.) Ch. 2
LEVINSON, A. (1996a), Environmental Regulations and Industry Location: International and Domestic Evidence, in: Bhagwati, J. and Hudec, R. (eds.) Ch. 11
LEVINSON, A. (1996b), Environmental Regulations and Manufacturers’ Location Choices: Evidence from the Census of Manufactures, Journal of Public Economics, 62, p. 5–29
MCCONNELL, V. and SCHWAB, R. (1990), The Impact of Environmental regulation on Industry Location Decisions: The Motor Vehicle Industry, Land Economics, 66, p. 67–81
MANI, M., PARGAL, S. and HUQ, M. (1997), Is There an Environmental Race to the Bottom? Evidence on the Role of Environmental Regulation in Plant Location Decisions in India, mimeo, World Bank, Washington
MARKUSEN, J. (1996), Location Choice and Environmental Quality and Policy, in: VAN DER BERGH, J. (Ed.), The Handbook of Environmental and Resource Economics, Cheltenham: Edward Elgar, UK, (forthcoming)
MARKUSEN, J., MOREY, E., OLEWILER, N. (1993), Environmental Policy when Market Structure and Plant Location are Endogenous, Journal of Environmental Economics and Management 24, p. 69–86
MARKUSEN, J., MOREY, E., OLEWILER, N. (1995), Noncooperative Equilibria in Regional Environmental Policies when Plant Locations are Endogenous, Journal of Public Economics 56, p. 55–77
Motta, M. and Thisse, J-F. (1994), Does Environmental Dumping Lead to De-location?, European Economic Review, 38, p. 563–576
Rauscher, M. (1995), Environmental Policy and International Capital Allocation, University of Kiel Working Paper
RAUSCHER, M. (1997), International Trade, Factor Movements and the Environment, Clarendon Press, Oxford
Tobey, J. (1990), The Impact of Domestic Environmental Policies on Patterns of World Trade: an Empirical Test, Kyklos, 43, p. 191–209
ULPH, A. (1994), Environmental Policy, Plant Location and Government Protection, in: Carraro, C. (ed.), Trade, Innovation, Environment, Rotterdam: Kluwer, p. 123–163
ULPH, A. (1997a), International Trade and the Environment: A Survey of Recent Economic Analysis, in: FOLMER, H. and TIETENBERG, T. (eds.), The International Yearbook of Environmental and Resource Economics 1997/8, Cheltenham: Edward Elgar, p. 205–242
ULPH, A. (1997b), Harmonisation, Minimum Standards and Optimal International Environmental Policy under Asymmetric Information, Discussion Paper in Economics and Econometrics No. 9701, University of Southampton
ULPH, A. (1998), Political Institutions and the Design of Environmental Policy in a Federal System with Asymmetric Information, European Economic Review 42, p. 583–592
ULPH, A. and. VALENTINI, L. (1997), Plant Location and Strategic Environmental Policy with Inter-sectoral Linkages, Resource and Energy Economics 19, p. 363–383
ULPH, A. and VALENTINI, L. (1998), Is Environmental Dumping Greatet When Firms Are Footloose?, mimeo, University of Southampton
ULPH, D., (1995), Globalisation and Environmental Dumping: Firm Location and Environmental Policy, Paper presented to Workshop on Environmental Capital Flight, Wageningen University
Van BEERS, C. and van Den BERGH, J. (1997), An Empirical Multi-Country Analysis of Environmental Policy on Foreign Trade, Kyklos, 50, p. 29–46
VENABLES, A. (1994), Economic Policy and the Manufacturing Base - Hysteresis in Location Paper Presented to CEPR Workshop on Environmental Policy, International Agreements and International Trade, London
WILSON, J. (1996), Capital Mobility and Environmental Standards: Is There a Theoretical Basis for a Race to the Bottom?, in: BHAGWATI, J. and HUDEC, R. (eds.) Ch. 10
BIRDSALL, N. and WHEELER, D.(1992), Trade Policy and Industrial Pollution in Latin America: Where are the Pollution Havens?. In Low (1992)
BURNIAUX, J.M., Nicoletti, G., Oliveira Martins, J. (1992): Green. A Global Model for quantifying the costs of policies to curb CO2 emissions, OECD Economic Studies, no. 19, Winter
DASGUPTA, S., MODY, A., SINHA, S. (1995), Japanese Multinationals in Asia: Capabilities and Motivations, Paper, Washington DC: World Bank
DE Jonquieres, G. (1997), Reform Has Not Yet Gone Far Enough, in: Is Globalisation Inevitable and Desirable?, Internet @ http://www.mondediplomatique.fr/md/dossiers/ft/
ESTY, D.C. (1994), Greening the GATT: Trade, Environment, and the Future, Washington DC: Institute for International Economics
GATT (General Agreement ON Tariffs AND Trade) (1992), Trade and Environment Report, Geneva: Gatt
GROSSMAN, G.M. and KRUEGER, A.B. (1992), Environmental Impacts of a North American Free Trade Agreement, Discussion Paper No 644, London: Centre for Economic Policy Research
HAN, K. and BRADEN, J.B. (1996), Environment and Trade: New Evidence From U.S. Manufacturing, Mimeo
JAFFE, A.B. et al. (1993), Environmental Regulations and the Competitiveness of US Industry, Report prepared for Economics and Statistics Administration, Washington DC: US Dept. of Commerce
KALT, J. (1988), The Impact of Domestic Environmental Regulatory Policies on US International Competitiveness, in: SPENCE, A.M., HAZARD, H.A. (eds.), International Competitiveness, Cambridge, MA: Ballinger
LOW, P. and YEATS, A. (1992), Do Dirty Industries Migrate?. In: LOW, P. (1992)
LUCAS, R., WHEELER, P., HETTIGE, H. (1992), Economic Development, Environmental Regulation and International Migration of Toxic Pollution 19601988. In: LOW (1992)
MANI, M. and WHEELER, D. (1997), In Search of Pollution Havens? Dirty Industry in the World Economy, 1960–1995, Working Paper Series, Research Project on Social and Environmental Consequences of Growth-Oriented Policies. Washington DC: Policy Research Department, World Bank
MOTTA, M. and THISSE, J.-F. (1994), Does Rnvironmental Dumping Lead to Dislocation, European Econmic Review, Vol. 38, p. 563–576
OECD (1997a), Globalisation and Environment: Preliminary Perspectives. Paris: OECD
OECD (1997b), Economic Globalisation and the Environment. Paris: OECD
Oliveira Martins, J. (1995), Unilateral Emission reduction, Competitiveness of energy-intensive industries and carbon leakages, in: Global Warming: Economic Dimensions and Policy Responses, OECD
REPETTO, R. (1995), Jobs, Competitiveness and Environmental Regulation: What are the Real Issues?, Washington DC: World Resources Institute
SORSA, P. (1994), Competitiveness and Environmental Standards: Some Exploratory Results, Policy Research Working Paper 1249, Washington DC: World Bank
TOBEY, J.A. (1990), The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Test, Kyklos, Vol. 43, p. 191–209
van BEERS, C. and van Den BERGH, J.C.J.M. (1997), An Empirical Multi-Country Analysis of the Impact of Environmental Regulations on Foreign Trade Flows, Kyklos, Vol. 50, p. 29–46
WHEELER, D. and MODY, A. (1992), International Investment Location Decsions: The Case of US Firms, Journal of International Economics, Vol. 33, p. 57–76
WOLF, M. (1997), Why This Hatred of the Market?, in: Is Globalisation Inevitable and Desirable? Internet: http://www.monde-diplomatique.fr/md/dossiers/ft/
XING, Y. and KOLSTAD, C.D. (1996), Do Lax Environmental Regulations Attract Foreign Investment?, Paper presented to National Bureau of Economic Research Workshop on Public Policy and the Environment, Cambridge, MA
ZAMPARUTTI, A. and KLAVENS, J. (1993): Environment and Foreign Investment in Central and Eastern Europe: Results from a Survey of Western Corporations. In: OECD (1993)
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2001 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Ulph, A., Valentini, L., Jones, T., Martins, J.O. (2001). Environmental Regulation, Multinational Companies and International Competitiveness. In: Welfens, P.J.J. (eds) Internationalization of the Economy and Environmental Policy Options. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-04580-0_3
Download citation
DOI: https://doi.org/10.1007/978-3-662-04580-0_3
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-07575-9
Online ISBN: 978-3-662-04580-0
eBook Packages: Springer Book Archive