countries with weak standards, thus reducing their costs and increasing their profits. Faced with such

behavior, countries reduce their environmental standards to attract multinational firms, which, after all,

provide jobs and economic clout. As a result, global production becomes concentrated in countries where

firms can pollute the most and environmental laws everywhere “race to the bottom.”

Although the race-to-the-bottom scenario sounds plausible, it does not appear to describe reality. In fact, the

financial incentive for firms to shift production to poor countries to take advantage of their weaker

environmental rules does not seem especially powerful. When firms decide where to locate a new factory, they
486 20 • Globalization and Protectionism

look at many different factors: the costs of labor and financial capital; whether the location is close to a reliable
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