Comments by Suresh Narayanan, on Export of Recyclable Materials: Evidence from Japan

Abstract

Suresh Narayanan: This paper tests the waste haven hypothesis (WHH), which examines the exporting of physical waste materials from countries with stringent environmental regulations to countries where such regulations are lax. The paper focuses on Japan as the exporter of waste and 31 Asian and developed countries as the potential importers of wastes—by implication nations with lax environmental regulations. The paper limits itself to four recyclable resource materials.This version is a much improved one, with the authors having incorporated many of the earlier suggestions. The paper now discusses more explicitly the gains of both developing countries and Japan from the trade in waste. The authors’ data on the regulation index has improved and, more importantly, they find that the regulation gap (the differences in environmental regulations between Japan and the countries that import waste) significantly affects the waste trade. In other words, they contend that their findings now support the WHH that Japan exports waste to countries with less stringent environmental regulations. It is worth noting that the previous version did not.I am still unclear if the predictions the authors set out to test (“high-GDP countries with high wage rates will export to low-GDP countries with low wage rates that have lax regulations and are not too far away”) actually come out of the WHH framework. The better known pollution haven hypothesis (PHH) suggests that highly polluting firms in developed countries with stringent environmental regulations will redirect investment or relocate to countries with the lowest environmental standards or weakest enforcement. This suggests three testable propositions:The WHH as advanced by Kellenberg (2012) differs from the PHH only in the sense that it refers to exports of physical waste rather than the relocation of polluting industries to countries with lax environmental regulations. Are the predictions that the authors set out to test the equivalent testable propositions from the WHH? Despite a better discussion of the WHH in this version, this point is not any clearer. According to D’Amato Mazzanti, and Montini (2013), Kellenberg stressed the importance of structural (population density), market price (gate fees), and technology/capacity as well as regulatory stringency and enforcement in influencing the waste trade. How do the predictions outlined by the authors tie in with the factors outlined by Kellenberg? Distance, for example, received no mention in the WHH.The empirical findings of the authors indicate that countries with a higher GDP, lower per capita income, and location near Japan were more likely to import waste from Japan. Furthermore, high-quality waste was more likely to be exported because of the difficulty of recycling low-quality waste. Finally, their findings suggest that importing countries that implemented stringent environmental regulations were less likely to import waste products.It puzzles me that the authors were only concerned with the sign and significance of the coefficients. Granted, the model might have issues of specification, data, and measurement errors. Despite these limitations, the authors have gone ahead with their estimates. Therefore, they should not have stopped at presenting just the estimated coefficients, which offer no direct interpretation. It would have been more meaningful to present the associated probabilities as well, with the caveat that they are indicative rather than conclusive.Of the variables influencing the waste trade, only environmental regulation serves as a direct policy handle that can be manipulated, if necessary. But this does not necessarily mean that it should be. Therefore, I found it surprising that the authors recommend that all Asian countries should impose substantial tariff rates uniformly on all types of waste to reduce waste export. This is a curious suggestion to make, especially because the authors had argued earlier that lower income countries have some advantages from engaging in the waste trade. Why would they want to restrict a trade that they were benefiting from?Perhaps the policy prescription, if any, that might be made on the basis of their finding is that low income countries should re-evaluate their costs and benefits from engaging in this trade to ensure that they import only waste that they can handle without putting their recycling workers or the environment at risk. Environmental regulations can then be tightened to ensure that hazardous waste is kept out and only safe wastes are imported.The authors make two other useful suggestions. First, countries engaging in exporting waste should inspect it to ensure that only clean and nontoxic recyclables are distributed. Second, importing countries should ensure that they have recycling facilities with environmentally sound technology to handle the waste. Neither of these insights, however, comes directly from the findings of the study.