Racing to the Bottom? Foreign Investment and Air Pollution in Developing Countries

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. The flaw in the race-to-the-bottom model is that its basic assumptions misrepresent the political economy of pollution control in developing countries.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, Wheeler 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, Wheeler 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.This paper - a product of Infrastructure and Environment, Development Research Group - is part of a larger effort in the group to study the economics of pollution control in developing countries. Please contact David Wheeler, room MC2-529, telephone 202-473-3401, fax 202-522-3230, email address dwheeler1@worldbank.org