Question

Which of the following statements is/are NOT CORRECT?

• A. According to the “Pollution Haven hypothesis”, trade liberalisation may lead to reallocation of production to countries where either environmental regulations are ineffective or altogether absent.
• B. According to the “Porter hypothesis”, stringency in ensuring environmental standards often induces firms to become more efficient and prevent technological advancement and innovation.
• C. According to the “Race to the Bottom hypothesis”, the environmental regulations are progressively made stringent so that economies gain in competition for inward investments.
• D. According to the “Environmental Kuznets curve hypothesis”, there is an inverted U-shape relationship between per-capita income and environmental quality.

Hint:

- The Pollution Haven hypothesis suggests that weaker environmental regulations attract production. - The Porter hypothesis argues that stricter regulations can foster innovation. - The Race to the Bottom hypothesis implies that countries might reduce environmental standards to attract investment. - The Environmental Kuznets curve suggests a relationship between income levels and environmental quality.

Answer 1

The Correct Option is B, C

Step 1: Analyzing statement (A):
The Pollution Haven hypothesis suggests that trade liberalisation can lead to the relocation of production to countries with weaker environmental regulations. This is a valid statement. Hence, statement (A) is correct.
Step 2: Analyzing statement (B):
The Porter hypothesis asserts that stricter environmental regulations can actually spur innovation and make firms more efficient. It does not suggest that strict regulations prevent technological advancement. Hence, statement (B) is incorrect.
Step 3: Analyzing statement (C):
The Race to the Bottom hypothesis suggests that countries might lower environmental standards to attract foreign investment, not raise them. Hence, statement (C) is incorrect.
Step 4: Analyzing statement (D):
The Environmental Kuznets curve hypothesis posits an inverted U-shaped relationship between economic growth (measured by per capita income) and environmental quality, where environmental degradation initially increases with income but decreases after a certain level of income is reached. Hence, statement (D) is correct.