Pollution-intensive Sectors Research Articles

Foreign Direct Investment and Environmental Policy: Have Location Factors Been Neglected?

This paper analyzes the effect of asymmetric environmental policies on firms' international location strategies in pollution-intensive sectors, when countries differ in terms of market size. The model shows that, when the tighter mitigation measures are introduced by the larger country and unit transport cost is high, the probability of firms not relocating abroad via foreign direct investment increases with market asymmetry. Furthermore, in some key scenarios, the total relocation outcome predicted by the pollution haven hypothesis is never an optimal strategy. The analysis suggests that international environmental rules should take account of differences in countries' market size and thus ability to attract production.

Three New Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous

The validity of existing empirical tests of the Pollution Haven Hypothesis (PHH) is constantly under scrutiny due to two shortcomings. First, the issues of unobserved heterogeneity and measurement error in environmental regulation are typically ignored due to the lack of a credible, traditional instrumental variable. Second, while the recent literature has emphasized the importance of geographic spillovers in determining the location choice of foreign investment, such spatial e ects have yet to be adequately incorporated into empirical tests of the PHH. As a result, the impact of environmental regulations on trade patterns and the location decisions of multinational enterprises remains unclear. In this paper, we circumvent the lack of a traditional instrument within a model incorporating geographic spillovers utilizing three novel identi cation strategies. Using state-level panel data on inbound U.S. FDI, relative abatement costs, and other determinants of FDI, we consistently nd (i) evidence of environmental regulation being endogenous, (ii) a negative impact of own environmental regulation on inbound FDI in pollution-intensive sectors, particularly when measured by employment, and (iii) larger e ects of environmental regulation once endogeneity is addressed. Neighboring environmental regulation is not found to be an important determinant of FDI. Key Words: Foreign Direct Investment, Environmental Regulation, Spillovers, Instrumental Variables, Control Function, Heteroskedasticity

Measuring Green Productivity Growth for China's Manufacturing Sectors: 1991–2000*

Over the past two decades, China has sustained rapid economic growth of 8–10 percent, part of which is attributed to the positive total factor productivity (TFP) growth. However, this extraordinary economic performance has been accompanied by severe environmental pollution and associated health damage. The conventional TFP method is biased in interpreting the progress of technology change because it does not consider non‐marketable residues, such as environmental pollution, and, hence, efficiency improvements in terms of pollution abatement technology and environmentally friendly management are ignored. This bias might direct our attention to less efficient use of environmental friendly abatement technologies or send wrong signals to policy‐makers. To address this issue, the present paper applies a modified welfare‐based green TFP approach, treating environmental damage as non‐desirable (negative) residual output. Therefore, environmental efficiency is taken into account to accurately interpret technological progress from a social welfare point of view. Based on a national time‐series input–output table, historical capital and labor input data for China and sectoral level air pollution emission data from 1991 to 2000, the empirical results suggest that with increasingly stringent environmental regulations, many pollution intensive sectors, such as electricity, primary metal and chemical industries, improved their environmental efficiency in the late 1990s. However, because of the weak environmental regulations in construction and transportation, and in sectors primarily composed of small private or township and village industrial enterprises, firms within these industries contributed to increasing environmental degradation.

FDI and the Capital Intensity of “Dirty” Sectors: A Missing Piece of the Pollution Haven Puzzle

AbstractIn an increasingly integrated world, falling trade barriers mean that the role environmental regulations play in shaping a country's comparative advantage is greater than ever. This has lead to fears that “dirty” industries will relocate to developing regions where environmental regulations may be less stringent. A number of reasons have been offered to explain why, despite anecdotal evidence and the predictions of theoretical studies, little empirical verification for the existence of pollution havens has been found. Little attention, however, has been paid to the capital intensity of pollution intensive sectors. We investigate the relationship between US outward FDI and factor endowments across sectors to two developing countries. We highlight the role of capital and believe it partially explains why pollution havens are not more widespread. Our approach also highlights those countries that are likeliest to become pollution havens. A multivariate analysis reveals some evidence of pollution haven consistent behavior.

Why the Grass is Not Always Greener: The Competing Effects of Environmental Regulations and Factor Intensities on US Specialization

The global decline in trade barriers means that environmental regulations now potentially play an increasingly important role in shaping a country's comparative advantage. This raises the possibility that pollution intensive industries will relocate from high regulation countries to developing regions where environmental regulations may be less stringent. We assess the evidence for this possibility by examining the USA's revealed comparative advantage (RCA) and other measures of specialization. We demonstrate that US specialization in pollution intensive sectors is neither lower, nor falling more rapidly (or rising more slowly) than in any other manufacturing sector. We offer an explanation for this finding. Our analysis suggests that pollution intensive industries have certain characteristics - specifically they are intensive in the use of physical and human capital - that makes developing countries less attractive as a target for relocation. We demonstrate econometrically the economic and statistical significance of these factors and illustrate how they appear to oppose the effects of environmental regulations as determinants of US specialization.

Why the grass is not always greener: the competing effects of environmental regulations and factor intensities on US specialization

The global decline in trade barriers means that environmental regulations now potentially play an increasingly important role in shaping a country's comparative advantage. This raises the possibility that pollution intensive industries will relocate from high regulation countries to developing regions where environmental regulations may be less stringent. We assess the evidence for this possibility by examining the USA's revealed comparative advantage (RCA) and other measures of specialization. We demonstrate that US specialization in pollution intensive sectors is neither lower, nor falling more rapidly (or rising more slowly) than in any other manufacturing sector. We offer an explanation for this finding. Our analysis suggests that pollution intensive industries have certain characteristics – specifically they are intensive in the use of physical and human capital – that makes developing countries less attractive as a target for relocation. We demonstrate econometrically the economic and statistical significance of these factors and illustrate how they appear to oppose the effects of environmental regulations as determinants of US specialization.

A Study on the Determinants of Environmental Innovation in Korean Energy Intensive Industry

A growing body of literature has noted that cleaner technology solutions are a “win-win strategy” that simultaneously brings benefits to environmental and economic performance. This paper is about pollution prevention and control in Korean industry. It provides a systematic understanding of the determinants of adoption of cleaner technology at the plant level, and suggests policy directions that encourage the adoption of cleaner technology and minimize obstacles to this process within the Korean context. In particular, it explores factors influencing the adoption of cleaner technology in a sampling of Korean plants from the industrial chemicals, and iron and steel sectors. This empirical research provides a pioneering empirical examination of the factors associated with the adoption of cleaner technology in the two most pollution intensive sectors in Korea. The critical role of environmental regulation was observed both as a driver of cleaner technology adoption and as a barrier to such cleaner technology adoption. In particular, the results indicate that motivation, a more flexible approach to implementation, and the perceived intensity of barriers related to the regulatory framework primarily determine the adoption of cleaner technology.

Determining the trade–environment composition effect: the role of capital, labor and environmental regulations

This paper argues that pollution-intensive sectors may be subject to opposing forces of comparative advantage since these sectors are also typically capital intensive, yet regions with low environmental regulations tend to be those that are the least capital abundant. We examine therefore, whether compositional changes in pollution arising from trade liberalization originate due to differences in capital–labor endowments and/or differences in environmental regulations. The contribution of the paper is threefold; first, we provide a comprehensive empirical analysis of the determinants of four common pollutants, paying particular attention to the nature of the trade-induced composition effect; second, we investigate whether the result of Antweiler et al. (Amer. Econom. Rev. 91 (2001) 877), who find evidence that both environmental regulations and capital–labor endowments determine sulfur dioxide concentrations, also holds for sulfur dioxide emissions; third, we examine whether this result holds for altogether different pollutants. Our results, while providing partial support for Antweiler et al., also raise a number of points for discussion.

On Ecological Dumping

pollution-intensive sectors of the economy to the cleaner sectors. The comparative advantage of the former is diminished by such a policy. Thus, environmental legislation affects the international division of labour and can be used to achieve trade-policy objectives. This is particularly appealing if the traditional instruments of trade policy, tariffs and quotas, are not available, for instance if the country has signed treaties that prohibit restrictions on imports from other countries. Examples are the EC treaties and the GATT. Thus, the politician may be tempted to use the tools of environmental policies to achieve objectives other than the internalisation of the social costs of pollution. The objectives may be terms-of-trade improvements, strategic trade-policy considerations, or the protection of infant or ailing industries or sectors which are supported by powerful lobbies. The protection of particular sectors or subgroups of a society by means of environmental policies may result in an environmental legislation which is too lax in some sense. Producers obtain hidden subsidies in terms of low pollution abatement requirements and they can dump their products in international markets at prices that do not reflect the true cost of production. This is considered to be a practice of unfair trade. Thus, the term 'ecological dumping' is often used in the public discussion to paraphrase the phenomenon. This catchphrase will be taken up for the following investigation. It should be kept in mind, however, that, in contrast to normal dumping, ecological dumping is an activity performed by the government and not by an individual firm. Moreover, it does not in the first place affect the price of a tradable commodity but that of a factor of products which is internationally immobile: nature's capability to provide environmental resources. This paper is an attempt to cast some more light on the issue of ecological dumping. In a first step, a sensible definition of the subject is sought. What is ecological dumping and how can it be measured? We shall then try to identify economic motives underlying a government's decision to engage in ecological dumping. It will be assumed that the government follows a rational strategy, i.e. it maximises national welfare or another objective function. Firstly, the