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Racing to the bottom : foreign investment and air pollution in developing countries

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  • Wheeler, David

Abstract

Critics of free trade have raised the specter of a"race to the bottom,"in which environmental standards collapse because polluters threaten to relocate to"pollution havens"in the developing world. Proponents of this view advocate high, globally uniform standards enforced by punitive trade measures that neutralize the cost advantage of would-be pollution havens. To test the race-to-the-bottom model, the author analyzes recent air quality trends in the United States and in Brazil, China, and Mexico, the three largest recipients of foreign investment in the developing world. The evidence clearly contradicts the model's central prediction. The most dangerous form of air pollution--suspended particulate matter--has actually declined in major cities in all four countries during the era of globalization. Citing recent research, the author argues that the race-to-the-bottom model is flawed because its basic assumptions misrepresent the political economy of pollution control in developing countries. He proposes a more realistic model, in which low-income societies serve their own long-run interests by reducing pollution. He concludes with recommendations for international assistance measures that can improve environmental quality without counterproductive enforcement of uniform standards and trade sanctions.

Suggested Citation

  • Wheeler, David, 2001. "Racing to the bottom : foreign investment and air pollution in developing countries," Policy Research Working Paper Series 2524, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2524
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    References listed on IDEAS

    as
    1. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
    2. Dasgupta, Susmita & Wheeler, David, 1997. "Citizen complaints as environmental indicators : evidence from China," Policy Research Working Paper Series 1704, The World Bank.
    3. Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
    4. Pargal, Sheoli & Wheeler, David, 1996. "Informal Regulation of Industrial Pollution in Developing Countries: Evidence from Indonesia," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1314-1327, December.
    5. Susmita Dasgupta & Ashoka Mody & Subhendu Roy & David Wheeler, 2001. "Environmental Regulation and Development: A Cross-country Empirical Analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 29(2), pages 173-187.
    6. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1997. "Can capital markets create incentives for pollution control?," Policy Research Working Paper Series 1753, The World Bank.
    7. Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
    8. Paul Lanoie & Benoit Laplante & Maité Roy, 1997. "Can Capital Markets Create Incentives for Pollution Control?," CIRANO Working Papers 97s-05, CIRANO.
    9. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
    10. Dasgupta, Susmita & Hua Wang & Wheeler, David, 1997. "Surviving success : policy reform and the future of industrial pollution in China," Policy Research Working Paper Series 1856, The World Bank.
    11. Hartman, Raymond S.*Huq, Mainul*Wheeler,David R., 1997. "Why paper mills clean up : determinants of pollution abatement in four Asian countries," Policy Research Working Paper Series 1710, The World Bank.
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    More about this item

    Keywords

    Environmental Economics&Policies; Water and Industry; Health Monitoring&Evaluation; Pollution Management&Control; Sanitation and Sewerage;

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