From Pollution Havens to Green Havens: When Environmental Standards Help Countries Become More Competitive

For several decades, globalization followed a blunt logic. When environmental regulations tightened in one country, firms shifted production to other regions, typically to places with more lax standards and lower costs. Economists have long described this situation as the pollution haven effect, that is, when clean countries regulate, dirty production moves offshore, and global pollution barely changes. That logic still explains much of the world economy. But it is rather incomplete. Recent scientific evidence from international business and strategy research shows that when firms sell green products, they behave very differently. Instead of avoiding strict regulation, they often seek it. Rather than sourcing from pollution havens, they source from what we might call green havens. This reversal and narrative matter in a world that increasingly debates the net benefit of making the world greener. It tells us something important about how globalization is evolving and about the growing role of legitimacy, transparency, and civil society in disciplining multinational firms. As a matter of fact, green products are no longer marginal. Market projections suggest that global demand for green premium products will exceed USD 650 billion by the early 2030s, growing at double-digit rates across major regions (see Figure 1).

Figure 1. Projected growth of the global green premium products market, by region (illustrative estimates based on Polaris Market Research).

The old globalization story: cost efficiency at all costs

Extant research on global sourcing shows that firms respond strongly to differences in environmental regulation across countries. When standards rise, pollution-intensive activities decline locally and expand elsewhere, leaving global emissions largely unaffected. The underlying assumption is simple: firms prioritize cost efficiency, and environmental regulation raises costs. However, this assumption implicitly treats the where and how of global production as largely invisible to buyers. That assumption no longer holds, particularly for green products.

Green products change sourcing incentives

A recent study published in the Journal of International Business Studies by Berry et al. (2025) provides unusually clear evidence on this point. Using global trade data covering more than 5,000 products and nearly two decades, the authors compare sourcing patterns for green versus non-green products across countries with different levels of environmental regulation. Their findings are very interesting and offer useful insights. They find that as environmental standards increase, exports of non-green products fall, exactly as pollution haven logic predicts. But exports of green products increase. In other words, stricter environmental regulations push back dirty production but attract green production. This “green haven” effect is particularly strong for:

• Consumer-facing products, where reputational exposure is high

• Imports into countries with environmentally engaged consumers

• Contexts with a strong presence of NGOs, which increase scrutiny

Green products, it turns out, are not only about reducing emissions. They are also about maintaining credible environmental legitimacy. The green haven logic is most evident in highly scrutinised sectors such as electric vehicles, batteries, renewable energy equipment, and green hydrogen, industries that now dominate global growth projections (see Figure 2).

Figure 2. Selected product categories with strong projected global demand growth, including several green and sustainability-intensive sectors (illustrative industry estimates).

From production costs to green legitimacy

But why does this happen? The answer lies in legitimacy rather than compliance. Green products make explicit environmental claims. Those claims invite scrutiny from consumers, activists, investors, and regulators. If a firm markets a product as sustainable while sourcing it from countries with weak environmental oversight, the inconsistency is visible and potentially risky and costly for the firm. Recent strategy research shows that firms suffer when sustainability talk is decoupled from sustainability action. The research study by Bothello et al. (2023) published in the Strategic Management Journal shows that perceived greenwashing, i.e., when claims outpace substance, triggers legitimacy penalties and undermines firm performance. Sustainability, in this sense, becomes a strategic exposure rather than a branding exercise. Sourcing from countries with stringent environmental standards acts as a credibility signal. Strong regulation reassures stakeholders that environmental practices are monitored, enforced, and transparent. For green products, the location of production becomes part of the product’s value proposition. Seen this way, regulation does not simply raise costs. It reduces legitimacy risk.

Transparency is costly and unevenly distributed

There is another reason firms are attracted by green havens: transparency is difficult to engineer within global value chains. Modern supply chains are fragmented and multi-tiered. Even firms with strong sustainability intentions often struggle to verify environmental practices beyond their immediate suppliers. Recent research by Cui, Gaur, and Liu (2024) published in Management Science shows that transparency requires deliberate design choices, investments in traceability systems, disclosure architectures, and information governance. These choices involve trade-offs and are far from trivial. Sourcing from countries with strong environmental institutions partially substitutes for these challenges. Regulation, enforcement capacity, and reporting standards make environmental practices more observable by default. In effect, firms can “borrow” institutional credibility when producing in greener jurisdictions.

For green products, geography becomes a governance mechanism.

What are the implications for countries and global capitalism

1. Environmental regulation does not automatically drive production away. Under certain conditions, it attracts higher-value, future-oriented activities. Countries with strict environmental standards can become export hubs for green products, rather than victims of regulatory disadvantage.

2. Sustainability is not enforced by regulation alone. The disciplining force comes from the interaction between consumers, NGOs, regulators, and firms. Where civil society is active and information is visible, markets reward credibility.

3. Globalization is not collapsing; it is being reordered. Dirty production still seeks low-cost havens. But green production clusters are where legitimacy is easiest to defend. Global value chains are fragmenting along environmental lines.

4. The idea that capitalism is structurally incapable of responding to grand challenges is not accurate. While markets alone will not solve climate change, they are more responsive to environmental pressures than often assumed, especially when legitimacy, transparency, and reputation are at stake.

A different kind of “race to the top”

For years, environmental policy debates focused on preventing a “race to the bottom.” New evidence suggests that, at least for green products, we may instead be witnessing a “race to the top.” Not because firms have become altruistic, but because credibility has become economically valuable. Green products avoid pollution havens not out of moral virtue, but because sustainability, once visible, reshapes competitive advantage. Cutting environmental corners is no longer cheap. It is risky. And that may be one of the more hopeful developments in the political economy of globalization.

References

• Berry, H., Chauvin, J., Cheng, Y. (Lance), & Lee, N. (2025). The global sourcing of green products. Journal of International Business Studies, 56(4), 1–18.

• Bothello, J., Nason, R. S., Schnatterly, K., & Werbel, J. D. (2023). CSR decoupling within business groups and the risk of perceived greenwashing. Strategic Management Journal, 44(13), 3217–3251.

• Cui, Y., Gaur, V., & Liu, J. (2024). Supply chain transparency and blockchain design. Management Science, 70(5), 3245–3263.