The Impact on Industry and Competitiveness
Chapter 2: Environmental Regulation, International Competitiveness and the Location of Industry
15435_EnvironReg/Chap 2 30/5/02 2:48 pm Page 1 2. Environmental regulation, international competitiveness and the location of industry INTRODUCTION The impact of environmental regulation on competitiveness and the location of industry is the central theme of this book. It is a major issue of concern to policy makers and to industry. It has also been the subject of considerable academic debate in the last few years between those who see an inherent conflict between the protection of the environment and international competitiveness, and those who believe that environmental regulation can in fact improve economic performance. The conventional economic approach assumes that there is a trade-off between environmental regulation and competitiveness. Regulation is a means whereby environmental costs are partly or wholly internalized. Firms that undertake additional expenditures in order to abate pollution and reduce environmental damage will therefore tend to have higher costs than those that do not. At the international level this implies that producers in countries with more stringent environmental controls will be less competitive than those in countries which take a laxer approach towards protection of the environment.1 This takes a North-South dimension in so far as it is usually assumed that developing countries tend to have lower environmental standards or to enforce their standards less strictly than the advanced industrial countries. While this approach assumes an inherent conflict between environmental regulation and competitiveness, the reverse hypothesis, that regulation can promote competitiveness, has gained currency in recent years. This derives from a more dynamic view of...
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