substantially weaken the race to the bottom incentive ex ante. When looking at trade patterns in general, for example in the context of environmental regulation, Jaffe et al. (1995), among others, did not find any significant (negative) correlation between such regulation and industry competitiveness, but stress the general costs and benefits related to regulatory activity. Evidence that firms then chose their investment locations according to environmental regulation is equally unsupported (see Drezner 2006 for a summary). An OECD study on Trade, Employment and Labor Standards (1996) concluded that there exists a positive correlation between successfully sustained trade reforms and improvements in core standards. Similarly, Bhagwati (2004) states that without the recent globalization the exploitation of workers would have been much greater in many parts of the world. In sum, corporate preferences regarding location and regulation are not straight forward but rather complex and complemented by considerations of agglomeration or income effects. Furthermore, there are potential gains from stringent regulation such as the protection of assets (e.g. via IP rights), competitive advantages vis-a-vis firms that need to adjust in light of regulatory upwards convergence (see Garcia Johnson (2000) or Maxwell and Lyon (2004)), or positive correlation between single international standards and strong corporate culture (Dowell, Hart and Yeung 2000). Davis, v. N. Whitman and Zald (2008) then conjecture that if large and important sales markets such as the EU or the US are characterized by high regulatory standards, firms will tend to adopt those high standards even abroad (export of standards) and a "race to the top" might occur.

So can strategic CSR actually help realigning empirical findings with theory? Emerging but still very preliminary evidence hints exactly at that, although one has to be cautious in light of issues related to estimation and measurement. Dam and Scholtens (2008) investigate a cross sectional firm level dataset (EIRIS, AMADEUS, WBES and WDI) covering 44,149 subsidiaries of 540 European Multinational Enterprises (MNEs) in 188 countries and find that increased CSR<sup>8</sup> activity within a firm reduces its likelihood to locate in regulatory pollution heavens. This finding suggests the existence of a broad separating equilibrium (as proposed in Kitzmuller and Shimshack (2012)), where a neutral sector is more likely to follow classical PHH and RTB predictions, while a CSR sector is subject to some mechanism that may dampen classical incentives.

# _International CSR and the Role of Information_

Economists have recently started to analyze strategic, market driven corporate provision of public goods or reduction of public bads and externalities. This behavior has been termed self regulation or CSR<sup>9</sup> . Besley and Ghatak (2007), Bagnoli and Watts

> 8 The authors use a variable called Environmental Responsibility as a proxy for CSR. Environmental Responsibility contains factor scores based on a factor analysis of four indicators from the EIRIS (Ethical Investment Research Service) database ranking all firms on a scale between -1 and 3. The four indicators are Environmental Performance, Impact Improvement, Environmental Reporting and Environmental Management.

> 9 The fact that CSR can be used in a strategic fashion while being perfectly coherent with profit maximization led to the term "strategic CSR" coined by Baron (2001). Potential strategies range from attracting a motivated workforce (e.g. Besley and Ghatak 2005) to selling to socially responsible consumers (e.g. Bagnoli and Watts 2003) to hedging against private (e.g. Baron 2001) or public policy interventions (e.g. Lyon and Maxwell 2004 ).

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