Regulatory Competition and Environmental Harmonization: Race to the Bottom or Race to Brussels?

In times of a globalised economy not only are environmental goods and problems transboundary, so are economic processes. Firms and economies are subject to international competition. In states with stricter environmental regulations, productions costs for firms are higher and the firms consequently suffer a competitive disadvantage in comparison to firms in states with laxer standards. The classical research question about regulatory competition is whether and under which conditions this situation leads to a regulatory "race to the bottom" (Oates/Schwab 1988; Scharpf 1996, 1997, 2000; Holzinger 2001, 2003). Within the EU financed project "Environmental Policy Convergence in Europe" (ENVIPOLCON) data on the development of 40 environmental policies over 30 years (1970 to 2000) in 24 countries have been collected. Among these 40 policies not a single "race to the bottom" could be observed. Moreover, the statistical analysis of these data has shown, that international trade can neither entirely explain the observed convergence of environmental standards nor the direction into which the standards converge, that is, to the top. An ad hoc explanation for this finding could be that regulatory competition does not arise, because its threat alone induces political actors to search for a political solution at the international level. Both economic actors and politicians have an incentive to avoid regulatory competition by introducing international harmonisation of environmental standards. The proposed paper will test this hypothesis using the data of the ENVIPOLCON project. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]