Question

Explain the logic behind the “race to the bottom” argument and the likely reason it has not occurred.

Short answer

To attract foreign businesses low-income countries compete by lowerign environmental regulations

Step-by-step solution

Step 1. Introduction 

Race to the bottom refers to the situation when low-income countries compete against each other by lowering environmental standards to attract businesses.

Step 2. Explanation

International trade has greater benefit for low-income countries as they have limited scope in their internal markets. To attract investment from foreign businesses, these countries make adjustments in their economies to make them attractive.

High-income countries generally have stronger environmental standards which raise the cost for businesses. Lower environmental standards might attract foreign businesses to operate in low-income countries thus bringing more jobs and higher wages.

To compete for these investments, low-income countries might compete against each other by constantly lowering their environmental regulations which would cause a great deal of environmental damage.