Handbook on Trade and the Environment
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Handbook on Trade and the Environment

Edited by Kevin P. Gallagher

In this comprehensive reference work, Kevin Gallagher has compiled a fresh and broad-ranging collection of expert voices commenting on the interdisciplinary field of trade and the environment. For over two decades policymakers and scholars have been struggling to understand the relationship between international trade in a globalizing world and its effects on the natural environment. The authors in this Handbook provide the tools to do just that.
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Chapter 24: Environmental Regulation, Globalization and Innovation

Nicholas A. Ashford


1 Nicholas A. Ashford Introduction This chapter explores the complex relationship between environmental regulation, innovation and sustainable development within the context of an increasingly globalizing economy. It will be argued that industrial policy, environmental policy and trade initiatives must be integrated, with a deliberate focus on stimulating technological innovation if trade and globalization are not to undercut progress in sustainable development. Health, safety and environmental regulation – herein collectively referred to as ‘environmental regulation’ – addresses failures of the free market to internalize many of the social costs of an industrialized or industrializing economy by requiring the adoption of measures to protect the environment, workers, consumers and citizens. Regulation is criticized and resisted by many industrial firms,2 who argue that such measures force sometimes unnecessary ‘non-productive’ investment that could be better directed to developing better goods and services and to expanding markets. Further, one of the complaints made by trading firms in industrialized nations is that such measures are not required in industrializing countries that enjoy the competitive advantage of free-riding on the environment and conditions of work. 3 A more modern view of the effects of regulation on the economy that results in competitive advantage resulting from regulation-induced innovation derives from the work of Michael Porter and Class van den Linde (1995a; 1995b), Martin Jaenicke and Klaus Jacob (2004), Jens Hemmelskamp et al. (2000), and Ashford (1979; 1985; 2000), among others, who argue that there are ‘first-mover’ advantages to firms that comply innovatively with regulation, become pioneers in lead...

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