Plant Location and Strategic Environmental Policy with Intersectoral Linkages

Abstract

Abstract In popular discussions of environmental policy and trade one frequently encounters the view that, even if pollution is a purely national concern, environmental policy should not be left to individual nations to determine. The fear is that national governments will be concerned that, if they impose tougher environmental policies than their rivals, this will put their domestic producers at a competitive disadvantage; in the extreme case that it will encourage a ‘flight of capital’ to ‘pollution havens’ with consequent loss of jobs, profits, and tax revenues. Such a concern by national governments, it is argued, will lead to competition between governments to relax their environmental policies, referred to as ‘ecological dumping’.2 The implication is that governments need to coordinate their environmental policies, which is frequently interpreted to mean that they should harmonize their environmental policies.