Environmental Compliance of Indian Leather Firms in the Post-WTO Period

Abstract

India is one of the major exporters of leather products. However, the exporting firms need to conform to a number of environment-related compliance requirements in foreign markets, which function as a major barrier. For instance, the introduction of the German ban on import of leather products with traces of PCP and azo dyes in late nineties has been followed by similar product and process related standards in other developed countries like the US. The outward-orientation of Indian leather sector firms has gone up over the years, accompanied by rising degree of environmental compliance for exporting units. The objective of the current paper is to analyze the determinants of environmental expense of leather firms in India in the period following the imposition of the stringent environmental standard through an empirical model. The findings underline the reverse relationship between environmental compliance and export orientation, but positive relationship with firm size and ownership structure. The result indicates that smaller players may encounter problems in undertaking of the compliance expenditures, which requires policy intervention. JEL Classifications: L67, F18