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Upending Conventional Wisdom on Pollution, Trade and the Race to the Bottom

One might anticipate that increasingly tight environmental restrictions, coupled with falling trade costs, might inspire a race to the bottom, as producers relocate to countries with less stringent regulations. However, new research by the World Bank, published in the World Development Report 2020, finds that this hypothesis has not been borne out. 

Looking at the United States as a case study, the report observed that emissions from U.S. manufacturing fell between 1990 and 2008. However, “contrary to the conventional wisdom about industrialized countries ‘offshoring’ production of polluting goods, imports to the United States have been shifting away from pollution-intensive goods even faster,” wrote the report’s authors.

“As trade costs fall, the U.S. increasingly imports goods in which it has a comparative disadvantage, which happen to be those that are relatively less pollution-intensive,” wrote the report’s authors. “Trends in Europe are similar, with imports becoming progressively less pollution-intensive, especially from low-income countries.”

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