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Impact on the Environment of Thailand’s Trade with OECD Countries
Abstract
The impact of trade liberalization on the environment is a matter of debate. Two conflicting hypotheses have emerged from the debate. One, the pollution haven hypothesis, suggests that the developed countries impose tougher environmental policies than do the developing countries, which results in distortion of existing patterns of comparative advantage. Thus, the polluting industries shift operations from the developed to the developing countries; developing countries therefore become “pollution havens.” The second hypothesis, the factor endowment hypothesis, predicts that trade liberalization will result in trade patterns consistent with the Heckscher-Ohlin-Vanek theory of comparative advantage based on factor endowment differentials. Rich countries are well endowed with capital. Since capital-intensive goods are often also pollution-intensive, factor-endowment theories of international trade predict that rich countries specialize in polluting goods. Thus, the manifestation of the pollution haven hypothesis is in direct conflict with the factor
... The implications of tariff reductions on the electrical and electronic appliances are quite obvious in Thailand. The export-led industrial boom began in the mid-1980s in Thailand and electrical and electronic appliances captured market shares of 21.55 per cent in 1990 and 48.87 per cent in 2000 (Mukhopadhyay, 2006). ...
... The technique effect in equation (3) given the new composition and scale effect is estimated as (Copeland and Taylor, 2003;Mukhopadhyay, 2006Mukhopadhyay, , 2007. There are two opposite views on this debate. ...
The environmental impact of a regional trade agreement towards liberalization is an empirical question. The paper estimates the economic and environmental impacts of alternative trade policies of liberalization between six East Asian countries using Global Trade Analysis Project (GTAP) framework. The finding reveals that Japan will be in a win- win situation followed by Republic of Korea after tariff reductions. Among the other countries, the impact on China is found to be neutral, while for Vietnam, though industrial output inducing is not environmental friendly. Further, the paper discusses the relevance of the findings for trade and environment debate. The paper concludes with alternative environmental policy implications.
... Some studies find that FDI increases pollution and thus "pollution haven" hypothesis holds. Mukhopadhyay (2006) finds that Thailand was a pollution haven for OECD countries in 2000. The cointegration-based empirical results by Acharyya (2009) suggest that FDI augments pollution in India during the 1980-2003 period. ...
This paper studies whether foreign direct investment (FDI)-CO2 emissions relationship may change depending on the data-driven estimated threshold levels for the country characteristics (CC) including human capital and governance in a sample of 13 Middle East and North Africa (MENA) economies during the 1996–2019 period. Our results strongly suggest that endogenously estimated CC thresholds matter for the impact of FDI on CO2 emissions. The pollution haven hypothesis, which maintains that FDI is associated with higher levels of pollution, appears to be valid for economies with weak CC. In addition to this, the pollution halo argument suggesting FDI lowers the emissions appears to be hold in countries with strong CC. The results in this study may indicate that policies aiming to improve human capital and governance may be expected not only to increase the economic benefits of FDI in terms of growth but also mitigate the negative environmental impacts of FDI in the MENA region.
... Some studies nd that FDI increases pollution and thus "pollution haven" hypothesis holds. Mukhopadhyay (2006) nds that Thailand was a pollution haven for OECD countries in 2000. The cointegration-based empirical results by Acharyya (2009) suggest that FDI augments pollution in India during the 1980-2003 period. ...
This paper studies whether foreign direct investment (FDI)-CO2 emissions relationship may change depending on the data-driven estimated threshold levels for the country characteristics (CC) including human capital and governance in a sample of 13 Middle East and North Africa (MENA) economies during the 1996–2019 period. Our results strongly suggest that endogenously estimated CC thresholds matter for the impact of FDI on CO2 emissions. The pollution haven hypothesis which maintains that FDI is associated with higher levels of pollution, appears to be valid for economies with weak CC. In addition to this, the pollution halo argument suggesting FDI lowers the emissions appears to be hold in countries with strong CC. The results in this study may indicate that policies aiming to improve human capital and governance may be expected not only to increase the economic benefits of FDI in terms of growth but also mitigate the negative environmental impacts of FDI in the MENA region.
JEL Classification: C13, C33, F21, F30, O50, Q56.
... This study also confirms that environmental quality improves with higher level of political rights and civil liberties. Mukhopadhyay (2006) used input-output techniques for evaluating the impact on the environment of Thailand"s trade with OECD countries, focusing on the two conflicting hypothesis (Pollution Haven Hypothesis and Factor endowment Hypothesis) considering three pollutants, Carbon dioxide, Sulfur dioxide and Nitrogen oxide(CO 2 , SO 2 and NO 2 ). Author"s result support pollution Heaven Hypothesis implying that export related pollution is much greater than the import related pollution for 2000. ...
The debate on the impact of trade on environment is pertinent considering the increasing volume of trade among world nations and the changes in environmental quality. In India, this increase was higher because of the gradual lifting of the quantitative restrictions and reduction in tariffs after trade liberalization in 1991. The pollution haven effect occurs when trade liberalization, coupled with lax environmental regulations results in increasing economic activities in pollution intensive industries. Using industry level data for the period 1998-2008, for fifty eight manufacturing industries in India, this paper looks at output and export trends and attempts to examine, whether trade liberalization is associated with a shift in production and exportation towards pollution intensive goods industries (pollution haven effect). Manufacturing output has been significantly higher from the water pollution intensive sectors compared to the air and toxic pollution intensive sectors. This evidence provides some support for concerns that there is significant contribution in production of manufacturing industries from dirty industries. The results of the study suggest that while trade liberalization measures have been pursued to promote economic growth in India but they have led to some potentially adverse environmental consequences.
... Another study, this time focused on Thailand, also confirmed the negative impact of FDI and enhanced exports of foreign affiliates of multinational enterprises on environmental pollution (Mukhopadhyay 2006). The author observes that the results of the analysis can be extended to other countries, such as Malaysia, the Philippines, or China. ...
The paper aims to present an overview of theoretical and empirical studies dedicated to “dirty” industries that migrate to pollution havens. It consists of three parts. The first one discusses the major determinants that trigger the migration of dirty industries. Next, attention is paid to the results of studies which reject the hypothesis about the existence of pollution havens. Part three addresses the ideas and concepts that validate this hypothesis and confirm that dirty industries move to countries with a more relaxed environmental regulatory regime. The paper finishes with a summary section presenting the main conclusions from the analysis.
... The pollution haven hypothesis is valid when environmentally harmful goods and 'dirty' (pollution-intensive) industrial processes from more advanced economies with stringent environmental laws find its way into developing economies with flexible environmental policies (Sarkodie and Strezov, 2019b). Studies that validate this hypothesis include Mukhopadhyay (2006) who used input-output analysis to validate the pollution-haven hypothesis for Thailand in the year 2000. The findings show that foreign direct investment further promotes exports with negative environmental effects. ...
Trade has become a carrier for transporting both clean and dirty (pollution-intensive) goods, services and technologies between countries. While the impact of trade on economic development has been reported in the extant literature, insufficient and inconsistent results exist between pollution-embedded trade and environmental performance. Using the Ordinary Least Squares (OLS), Generalized method of moments and panel quantiles via Moments, this study explored the role of government integrity on trade-environment nexus in the post-Kyoto protocol era for 79 countries between 2008 and 2018. The empirical results suggest that per capita GDP and government integrity improve environmental performance whereas trade impedes it. In the quantile regression model, the effect of government integrity is significant at the median quantiles with a stronger effect in countries with higher environmental performance. The negative effect of trade is not only significant from the lower quantile through the median quantile but decreases in magnitude, tracking from countries with lower to higher environmental performance. While the positive effect of government integrity is significant from the median quantile onwards, the negative effect of trade is only significant in the lower quantile. Robustness analysis from the GMM dynamic panel estimation technique shows that interacting government integrity with trade yields a positive and significant coefficient. Meaning that improved government integrity averts the negative effect of trade on environmental performance. The study suggests that outsourcing the regulations of trade-oriented multinational companies operating in developing economies with weak institutions to global humanitarian organisations such as the United Nations would be the first step to reduce trade-attributable environmental degradation.
... For example, empirical research on Latin America has been conducted to verify that the increase in FDI between 1980 and 2007 increased CO2 emissions [25]. Scholars draw the same conclusion in their research on Thailand and India [26,27]. On the other hand, the relatively cleaner technologies in production and pollution control introduced by FDI can positively affect the environmental technologies of host countries, thus resulting in green spillover, which improve environmental quality in host countries [28,29]. ...
Most governments strive for an ecological civilization so the efficiency of government expenditure on environmental protection (EPEE) is an important issue. While it is recognized that foreign direct investment (FDI) enhances environmental protection, this investigation focuses on the effects of FDI on the efficiency of government expenditure on environmental protection under fiscal decentralization. Analysis is conducted using an output-oriented data envelopment analysis (DEA) scale return model to calculate the efficiency of environmental protection spending in China. Then, a spatial model is built to test the linkages among FDI, fiscal decentralization and the efficiency of government expenditure. The results reveal that, firstly, the efficiency of government spending has been enhanced over the last 10 years. Secondly, FDI is positively correlated with the efficiency of government environmental expenditure in terms of both quantity and quality of spending and it has a positive spillover effect. Thirdly, financial decentralization is negatively correlated with the efficiency of environmental spending, but it improves the effect of FDI. Accordingly, policy proposals are that the government should improve the supervision system for environmental spending and local governments should pursue FDI, improve the structure of FDI and use its spillover effect to enhance the efficiency of environmental expenditure.
... Moreover, the studies in China (Christmann & Taylor, 2001;H. Liu, Xi, Guo, & Li, 2010), India (Kakali, 2006;Krishna & Mitra, 1998)and Mexico (Ekanayake, 2011) show that international trade is useful mechanism for environment. Here author believe that both kind of relationships exist among international trade and environment based upon the country economic and social environment. ...
... According to the pollution haven hypothesis, fossil energy and CO 2 emissions are considered to be important determinants of foreign direct investment (FDI) (Pao and Tsai, 2011). This is because weak environmental regulations in some developing countries attract numerous high-polluting industries that move from developed countries with strict environmental regulations (Hoffmann et al., 2005;Mukhopadhyay, 2006;Dean et al., 2009). Under carbon emission regulation policies, producers would seek to develop cost-efficient methods to decrease emissions, mainly by switching their investments to carbon emission abatement efforts (Bouchery et al., 2011). ...
Under conditions of policy incentives and energy transition, an investment is considered to become green if greater investment would support a reduction in the proportion of total energy consumption involving coal use. However, few empirical studies have attempted to investigate green investment in China at the sector level. Using panel data for 5 sectors in China between 2003 and 2012, we tested the relationships between investment and different factors, including carbon dioxide (CO2) emission reduction policies and energy structure, by building panel models for the national sample. The results demonstrated that investment did not become green and mainly relied on gross domestic product (GDP) during the 2003-2012 period in China. Although investments in the industry sector and the commerce and services sector were weakened by the CO2 emission regulations, Chinese climate policies had no effect on investment in the agriculture sector or the construction sector and had a positive effect on investment in the transportation sector. Moreover, the proportion of total energy consumption involving coal use had no effect on investment in the construction sector or the commerce and services sector but had a negative effect on investments in the agriculture sector and the transportation sector. Investment in the industry sector showed strong viscosity to low-price coal consumption. Finally, we propose a series of policy implications based on the test results, which may guide green investment.
... The shift of such industries from OECD countries to the developing countries/LDCs may lead to acceleration of industrial pollution intensity and often processing of toxic wastes in the latter (Lucas et al., 1992). The existence of PHH has been noted in China (He, 2006) and several ASEAN countries (Merican et al., 2007;Mukhopadhyay, 2006). It has been observed that formation of a RTA may facilitate concentration of polluting activities in locations characterised by less stringent environmental regulations within the bloc, and the Mexican experience within NAFTA deserves mention here (Gallagher, 2004). ...
The waves of globalisation in the past decades have increased the cross-country trade and investment flows, which also raise serious concerns over environmental sustainability and climate change owing to the following three effects. First, through scale effect the growing output and exports of the polluting sectors may adversely influence environmental balance. Secondly, growing trade volume can lead to change in industry structure and output composition resulting from composition effect, which may or may not have adverse environmental repercussions. Finally, the technique effect determines the pace of improvement in emission abatement standards and regulatory policies in an economy with rise in trade orientation. The present analysis attempts to analyse the effects of trade and investment orientation with respect to a particular climate change concern, namely per capita CO2 emissions, through panel data model for a set of 181 countries over 1980–2009. The empirical findings confirm that both in case of
... The shift of such industries from OECD countries to the developing countries / LDCs led to acceleration of industrial pollution intensity and often processing of toxic wastes in the latter (Lucas et al., 1992). The existente of PHH has been observed in China (He, 2006) and ASEAN countries (Mukhopadhyay 2006;Merican et al., 2007). It has been observed that formation of a RTA may facilitate concentration of polluting activities in locations characterised by less stringent environmental regulations within the bloc, e.g. ...
Over the last decade cross-country trade and investment flows have increased considerably, which
is often linked to climate change concerns. The present analysis attempts to understand the influence
of trade and investment flows on CO2 emissions through panel data model estimation for a set of 181
countries over 1990-2009. The empirical findings confirm that both in case of lower and higher income countries, higher merchandise trade growth in general and service and merchandise export
growth in particular leads to the higher CO2 emission growth in their territories. Both FDI inward and
outward stock is found to be positively related to CO2 emission, reflecting a complementary
relationship between the two. The empirical results indicate that the composition, scale and technology
effects significantly influence the trade-climate change interrelationship.
... Similarly, Fang and Beghin (2000) examine the potential implications of trade liberalization on the patterns of Chinese agricultural production. Finally, the relationship between environmental policy and trade patterns has also been simulated using the HOV model (for instance, Cole and Elliott;2003;Mukhopadhyay, 2006;Tobey, 1990). ...
Australia has long been a major exporter of the products of broadacre agriculture, a production system well suited to the economic and climatic conditions of the country. Presumably, it holds a comparative advantage in these products, among which grain crops and grazing livestock predominate. However, the future plausibility of this proposition is sensitive to the projected impacts of climate change. This article develops a framework to quantify the future patterns of comparative advantage in broadacre agriculture, given the projections of several global climate models. We find empirical support for the conventional wisdom, and note substantial resilience and robustness in Australia's comparative advantage under a number of scenarios.
The prolonged issue of environmental degradation, especially in developing countries, has urgently called for a solution by first identifying the source of the problem. Poverty has been identified as among the core cause of environmental degradation. But we also foresee the prospect of migrations from poor countries as an additional force that leads to the worsening of environmental deterioration. Empirically, this paper investigates the effect of migration on the environmental deterioration of 29 developing countries for the period between 1980 and 2019. Adopting the panel cointegration approach, the paper finds evidence that deterioration seems to be higher in countries with a higher level of migration. Although the results could be undesirable to the host countries, the best and win–win solution could be achieved by the government of the host countries, either with or without the assistance of the United Nations, to introduce more assistance to support their life and educate their citizens to be more environmentally savvy.
This article revisits the link between disaggregated Foreign Direct Investment (FDI) inflows and sectorial growth using the panel dataset of 25 Organisation for Economic Cooperation and Development (OECD) countries for the period 1990 to 2017. It adopted the panel fixed effect and Feasible Generalized Least Squares Approach in its analysis. The findings show that disaggregated FDI inflows have the potential to improve growth in the OECD area with adverse effects on domestic investment and inflationary pressure. Additionally, the results further indicate that disaggregated FDI inflows have a positive and significant relationship on the service and manufacturing sector but with no evidence shown on the agricultural industry. Thus, the study concludes that efficient reallocation of FDI resource(s) among sectors will not only boost output growth but also impact on the real economy. However, the necessary policy strategy to regulate this inflow is vital to mitigate its negative impact on domestic investment and inflation pressure.
In this paper, it was aimed to investigate the relation between economic growth, terrorism, foreign direct investment (FDI) inflow, environmental pollution, and energy consumption in China, India, Israel, and Turkey for a time span of 43 years from 1975 to 2017. Three different panel cointegration methods to determine the cointegration relation and two different causality methods to find the direction of causality were simultaneously used, since the presence of cointegration and direction of causality are fundamental to design economic policy and strategy. After similar results from panel cointegration tests were obtained, the causality tests were applied. Panel causality tests determined the evidence of uni-directional causality from terrorism, FDI, and energy usage to CO 2 emission.
India’s IIT has grown in importance after the adoption of trade liberalization measures in 1991. This chapter tries to assess India’s IIT by considering different aspects, like vertical specialization associated with IIT, the impact of IIT on environment and employment. The analysis focuses on India’s bilateral IIT with the USA, EU (27) and China during 2001–02 to 2015–16. The study finds that share of IIT in total trade between India and its trade partners is increasing. India’s IIT is dominated by the products which are differentiated vertically (VIIT). This might be an indication of vertical specialization and the country’s increasing participation in global production network. Results also reveal low-quality VIIT dominates in trade with the USA and EU (27). In trade with China, both low-quality and high-quality VIITs are found to be equally important, though the share of low-quality varieties is rising. Regarding environmental impact of IIT, values of PTOT are greater than one in most of the cases implying India being a pollution haven. In trade with China, pollution intensity of export component of IIT has shown an upward trend over the study period. Regarding employment generation, IIT has a positive impact on the labour market, particularly in trade with EU (27) and China. As India is found to be specializing mostly in the varieties of lower quality which are unskilled labour-intensive, promotion of IIT could lead to an inclusive growth in an unskilled labour-surplus economy like India.
This paper analyses the relationship between foreign direct investment inflows and pollution emissions for 139 countries during the period of 1970–2015 and the countries are classified into four groups regarding to the World Bank income ranking. The main motivation of this study is to analyse, whether the causal relationship differs between different income groups. For this purpose, panel ARDL (Auto Regressive Distributed Lag) boundary approach and Granger causality test are used. The results of the study indicate that the causal relationship between FDI (Foreign Direct Investment) and CO2 emissions differs depending on which income group country belongs to. We conclude that, while there is not statistically significant short-run causality relationship running from FDI to CO2 emission for high income, upper middle income and low income group countries, the pollution haven hypothesis is supported for lower middle income group countries.
The issue of economic growth and environmental quality has largely been discussed by various social scientists, economic thinkers and environmentalists. The relationship of trade and environment has also received considerable attention. This chapter presents the review of the existing studies under (i) trade liberalization-led economic growth; (ii) liberalized policies (on trade and investment) and its environmental implications at global and India levels; (iii) growth–environment interactions; (iv) market economy, property rights and environmental externalities. However, the studies measuring the impact of economic reforms on environment are scant at India level. Since the nature of externalities and its impact on society depends upon various socio-economic factors, such studies require a country-/area-specific approach.
The interrelationship between trade and the environment has become a pressing concern across the globe. Its nature varies from country to country, sector to sector, and firm to firm. This chapter investigates the two controversial hypotheses in the trade and environment literature, known as pollution haven and factor endowment using water pollution parameters for India for the year 2006–2007. The result reveals that India is exporting more water pollution-intensive goods, while importing less. Therefore, India is pollution heaven particularly for a number of water pollution parameters (dissolved solids, chloride, sulfide, BOD, and COD for the year 2006–2007). On the other hand, the result based on Leontief and Leamer approaches for the factor endowment hypothesis reveals that India is exporting labor-intensive goods and importing capital-intensive goods. This chapter attempts to explain these results with regard to the composition of exports and imports. Thus, the findings of water pollution content in India’s trade with the ROW have thrown further insight on trade and environment debate.
The purpose of this paper is to explore the impact of economic growth, FDI inflows, trade openness and energy consumption on environmental degradation in 17 MENA countries. We did our analysis in the panel framework over the period 1990–2012 using both the static (OLS, FE and RE) and dynamic (Diff-GMM and Sys-GMM) panel data approaches. The results show significantly that the environmental Kuznets curve exists. Furthermore, the study indicates that foreign direct investment increases environmental degradation, i.e., pollution haven hypothesis exist and the increase in trade openness and energy consumption results in an increase in CO2 emissions. These empirical insights are of particular interest to policymakers as they help build sound economic policies, more energy conservation policies and foreign policies to improve environmental quality.
Purpose
In recent years, most emerging economies have experienced large foreign direct investment inflows to the real estate sector (FDIRE) and increases in carbon dioxide (CO 2 ) emissions. The purpose of this study is to empirically investigate the effect of FDIRE on CO 2 emissions in a set of emerging economies.
Design/methodology/approach
Applying fixed‐effect and generalized method of moments (GMM) techniques, this paper uses related observations from 31 emerging economies between 2000 and 2008 to analyze the impacts of FDIRE on CO 2 emissions.
Findings
The empirical results show that FDIRE does not contribute to CO 2 emissions. It is also found that energy consumption, urbanization and economic development are important determinants of CO 2 emissions in emerging economies.
Originality/value
While there has been a series of papers that investigated the relationship between aggregate FDI and CO 2 emissions, very few empirical studies have examined the relation between sectoral FDI and CO 2 emissions across a large number of emerging economies.
The EU, the United States and other economies, with the intention to implement unilateral trade measures Border Carbon Adjustments, impose emission reduction pressure on developing countries. Once implemented, the measures will have great impact on China’s foreign trade. Using the input-output table in 2007, this paper had analyzed the influences on China’s foreign trade as a whole and sub-sectors in three tax rates scenarios. The results showed that the tariff level of China’s exports will increase by 3.6%–6.3% if the tax was levied on exports embodied emissions, and by 1.0%–1.7% if levied on export direct emissions. In 2007, the former total amount of carbon tax was about US$42.6–73.0 billion, 4 times that of the latter. Based on export embodied emissions, sectors largely influenced were non-traditional energy intensive ones, such as textile, et al. These sectors should be encouraged to carry out industrial upgrading, raising the value-added of export goods, and reducing their embodied emissions by reduction of energy intensity. Taking into account of the complexity of data collection, the tax levied on products direct emission is more operational. The results showed that the five top sectors most affected were other chemical materials, processing of petroleum and nuclear fuel, coking, smelting and rolling of ferrous metal and textile. Most of them were energy intensive sectors. Therefore, adjusting export products structure, and controlling too fast development of energy intensive industries are also important strategies in China.
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This study investigates environmental information provided in annual reports of Thai listed companies. Findings indicate that there are 62 companies (83%) providing environmental information in annual reports. Those companies with the largest environmental disclosures are in resource industry, while the lowest disclosures are made in agricultural and food industries. The most famous locations of environmental information in annual reports are revealed in corporate governance. The other form of popular disclosure is by photographs. The main themes of disclosures are environmental policy, environmental activities, and waste management. There is a positive relationship between amounts of environmental disclosures and size of company.
The current study evaluates the economy wide impact of trade liberalization in the ASEAN region along with China, Japan and Korea (ASEAN + 3) by the year 2020 using the GTAP framework. The study also assesses the environmental impact of the trade liberalization in the region focusing on the seven environmental indicators (CO2, CH4, N2O, BOD, COD, Suspended Solid and Industrial Waste). The result shows that the countries under agreement (ASEAN + 3) will benefit with increased output, expansion of trade and welfare due to trade reforms. Further, the integration will increase the global welfare, although the regions not under agreement in the world will show a decline in output growth. Vietnam will be gaining with the highest output growth among the ASEAN region; however, the impact on the environment would not be favourable. The environmental impact reveals a mixed outcome for participating countries under the agreement. The paper provides useful insight in pursuing greater trade liberalization among the countries under the study.
This paper addresses the impact of both economic growth and financial development on environmental degradation using a panel cointegration technique for the period between 1980 and 2007, except for Russia (1992–2007). In long-run equilibrium, CO2 emissions appear to be energy consumption elastic and FDI inelastic, and the results seem to support the Environmental Kuznets Curve (EKC) hypothesis. The causality results indicate that there exists strong bidirectional causality between emissions and FDI and unidirectional strong causality running from output to FDI. The evidence seems to support the pollution haven and both the halo and scale effects. Therefore, in attracting FDI, developing countries should strictly examine the qualifications for foreign investment or to promote environmental protection through the coordinated know-how and technological transfer with foreign companies to avoid environmental damage. Additionally, there exists strong output-emissions and output-energy consumption bidirectional causality, while there is unidirectional strong causality running from energy consumption to emissions. Overall, the method of managing both energy demand and FDI and increasing both investment in the energy supply and energy efficiency to reduce CO2 emissions and without compromising the country’s competitiveness can be adopted by energy-dependent BRIC countries.
The interlinkage between economic openness and environmental repercussions is a widely researched area. The current study contributes in the existing pool of research by conducting a cross-country empirical analysis for the year 2008 by exploring the interrelationship between openness indicators (trade and investment) and environmental performance of a country. For this purpose, the analysis separately considers export orientation, import orientation, FDI inwardness and FDI outwardness of the countries in different variations of the proposed empirical model. The regression results do not provide strong support to the Pollution Haven Hypothesis (PHH). The findings also confirm a relationship between socio-economic and socio-political factors in a country and its environmental performance.
JEL Classification Codes: F18, F21
The inter-linkage between economic openness and environmental repercussions is a widely researched area. The current study contributes in the existing pool of research by conducting a cross-country empirical analysis for the year 2008 by exploring the interrelationship between openness indicators (trade and investment) and environmental performance of a country. For this purpose, the analysis separately considers export orientation, import orientation, FDI inwardness and FDI outwardness of the countries in different variations of the proposed empirical model. The regression results do not provide strong support to the Pollution Haven Hypothesis (PHH). The findings also confirm a relationship between socio-economic and socio-political factors in a country and its environmental performance.
The past three decades have witnessed rapid economic development, particularly in countries that have pursued relatively open economic policies. Rising environmental awareness in the 1960s also led to a rapid tightening of pollution regulation in the industrial economies. According to the "pollution havens" hypothesis, the result should have been more rapid growth of dirty industries in unregulated economies that were open to international trade. Using data for the period 1960 to 1995, the authors find that the displacement of pollution to developing countries has not been a major phenomenon for several reasons. Tendencies toward formation of pollution havens have been self-limiting because economic growth has generated countervailing effects through increases in regulation, technical expertise, and investment in cleaner production. In practice, the authors argue that pollution havens have apparently been as transient as low-wage havens.
Foreign direct investment (FDI) flows into developing countries have been increasing dramatically over the past decade. At the same time, there has been widespread concern that lax environmental standards are in part responsible for this surge. This paper revisits the pollution haven hypothesis by examining to what extent the pollution intensity of production helps explain FDI in Mexico. By focusing on pollution intensities, which are directly related to emission regulations, we avoid the problem of unobservable pollution taxes and allow for substitution between capital and pollution. Examining several different pollutants, we find a positive correlation between FDI and pollution that is both statistically and economically significant in the case of the highly regulated sulfur dioxide emissions. Industries for which the estimated relationship between FDI and pollution is positive receive as much as 40 percent of total FDI and account for as much as 30 percent of manufacturing output. Although our results suggest that environmental considerations matter for firms' location decisions, FDI locates in Mexico also in accordance with its comparative advantage in labor- intensive production processes, consistent with the previous literature.
The paper empirically explores the linkages between environmental regulations and international trade flows. So far, empirical studies either have failed to find any close statistical relationship or have delivered questionable results due to data limitations. Using a comprehensive new database for environmental regulations across countries, a thorough empirical investigation of that linkage for 119 countries and five high-polluting industries is performed. No evidence is found to support the pollution hypothesis that industries facing above-average abatement costs with environmental regulations would prefer pollution havens and relocate their activities. The exception is iron and steel products, where a negative and statistically significant link is established, implying that higher compliance with international treaties and conventions and more stringent regulations are associated with reduced net exports. High-income countries, where environmental regulations are usually more stringent in comparison to middle or low income countries, have experienced a considerable decline in the export-import ratio of iron and steel products since the late 1970s. There is no clear evidence that national governments choose sub-optimal policies that result in insufficient regulations, so the case for environmental standards within the WTO framework is relatively weak.
Very little work has been done to determine how far international shifts in industrial location have been prompted by differential environmental standards. The paper seeks to determine if a locational pull of dirty industries toward developing countries exists and, if so, to assess its magnitude. Our analytical approach focuses on secular changes that occurred in developed and developing countries' actual trade and revealed comparative advantage in heavily polluting industries, and also evaluates the locational influence of these industries' production characteristics. The latter aspect is intended to determine if the dirty industries have special characteristics like high labor intensity or natural resource requirements that also work toward (or against) their migration to developing countries. -from Authors
Nowhere has the divide between advocates and critics of globalization been more striking than in debates over free trade and the environment. And yet the literature on the subject is high on rhetoric and low on results. This book is the first to systematically investigate the subject using both economic theory and empirical analysis. Brian Copeland and Scott Taylor establish a powerful theoretical framework for examining the impact of international trade on local pollution levels, and use it to offer a uniquely integrated treatment of the links between economic growth, liberalized trade, and the environment. The results will surprise many. The authors set out the two leading theories linking international trade to environmental outcomes, develop the empirical implications, and examine their validity using data on measured sulfur dioxide concentrations from over 100 cities worldwide during the period from 1971 to 1986. The empirical results are provocative. For an average country in the sample, free trade is good for the environment. There is little evidence that developing countries will specialize in pollution-intensive products with further trade. In fact, the results suggest just the opposite: free trade will shift pollution-intensive goods production from poor countries with lax regulation to rich countries with tight regulation, thereby lowering world pollution. The results also suggest that pollution declines amid economic growth fueled by economy-wide technological progress but rises when growth is fueled by capital accumulation alone. Lucidly argued and authoritatively written, this book will provide students and researchers of international trade and environmental economics a more reliable way of thinking about this contentious issue, and the methodological tools with which to do so.
This article aims at contributing to environment trade debate by evaluating the impacts of international trade on emissions of carbon dioxide, sulphur dioxide, and nitrogen oxides for the Indian economy during 90s using Input-Output techniques. The article has constructed an index of pollution terms of trade. Using the Input-Output table of 1991–92 and 1996–97 for India we have computed pollution terms of trade for the content of CO2, SO2, and NOx. Results show that the indices are below 100, indicating that India produces goods that are more environment friendly than goods it imports, thus challenging the pollution haven hypothesis for India. The article has also offered explanations for these results.
A policy of trade liberalization is often suggested as a means of stimulating economic growth in developing countries. Given the potential benefits of trade liberalization policies, it is important to examine whether such policies are in fact in conflict with the environment as they accelerate economic growth. Two conflicting hypotheses emerge from the trade-environment debate. The first competing hypothesis states that increasing trade may encourage developing countries with weaker environmental protection to specialize in industries that create more pollution. This is referred to as the pollution haven hypothesis (PHH); the second hypothesis, known as the factor endowment hypothesis (FEH), predicts that trade liberalization will result in trade patterns consistent with the Heckscher-Ohlin-Vanek (HOV) theory of comparative advantage based on factor endowment differentials. The manifestation of PHH is in direct conflict with FEH. The present paper aims at testing both hypotheses, PHH and FEH, for India's trade with the rest of the world and the European Union (15) during the 1990s when radical economic reforms were introduced. The input-output method is used and suitably modified to test both the hypotheses considering three pollutants, carbon dioxide, sulphur dioxide and nitrogen dioxide (CO 2 , SO 2 and NO x). It is clear from the results that import-related pollution is much greater than the export-related pollution for India. The findings of the present work challenge the pollution haven hypothesis, arguing that liberalization of trade policy in India has not been associated with pollution-intensive industrial development. On the other hand, the study supports the factor * Visiting fellow, School of Environment, Resources and Development (SERD), Asian Institute of Technology, Pathumthani, Thailand.
The design of many greenhouse gas policies is predicated on controlling emissions by reducing domestic greenhouse gas (GHG) emissions. This ignores the importance of carbon embodied in international trade flows which could take on increased importance if emission reduction schemes are undertaken which include only a subset of GHG emitting countries. This article estimates the amount of carbon embodied in the imports of manufactured goods to six of the largest OECD countries — Canada, France, Germany, Japan, the UK and the USA — in order to determine whether or not the importation of carbon rich products is a problem worth addressing. The estimates reveal that a significant amount, about 13% of the total carbon emissions of these countries, is estimated to be embodied in manufactured imports. The article concludes by suggesting a number of policy implications that can be drawn from these findings.
International negotiations of reducing CO2 emissions address the question of how to account annual CO2 emissions. For open economies like Denmark facing national CO2 targets import and export of commodities influence the total accounted CO2 emissions. In this article we demonstrate the consequences of using two basic accounting principles: a production versus a consumption principle. The distinction between the two principles is whether the producer or the consumer is responsible for the CO2 emitted. By subtracting total emissions based on the two accounting principles we develop the concept of a “CO2 trade balance”. Using Denmark as a case, we show that from 1989 to 1994 the CO2 trade balance has changed dramatically turning into a deficit of 7 million tonnes from a surplus of 0.5 million tonnes in 1987. Consequently, it has become more difficult to reach the national CO2 target as an increasing part of emissions from Danish territory is caused by foreign demand.
A simple and minimal criterion for sustainability is that the value of natural capital plus manufactured capital be not decreasing. On the basis of any individual country or region, the above simple comparison may be misleading, as it does not take account of the production of goods for consumption in other countries/regions, via international trade. In other terms, the full `environmental footprint' of a country may not be properly assessed. A method of calculating a weak sustainability criterion has been established for both a `closed' economy approach and an `open' economy approach. There are significant differences between the open and closed economies measures for several regions, particularly the Middle East. Overall, global sustainability on this criterion has been positive, and increasing. Using a difference equation approach, a further analysis has been made of the average proportional rate of change of global sustainability between 1980 and 1990, and its various regional and structural components have been determined. These indicate that most of global sustainability growth can be attributed to Western Europe, Other Asia and Japan, particularly through high savings ratios. The USA, on the other hand, has made a very small net contribution to the growth in global sustainability.
This paper presents evidence on whether multinationals are flocking to developing country “pollution havens”. Although we find some evidence that foreign investors locate in sectors with high levels of air pollution, the evidence is weak at best. We then examine whether foreign firms pollute less than their peers. We find that foreign plants are significantly more energy efficient and use cleaner types of energy. We conclude with an analysis of U.S. outbound investment. Although the pattern of U.S. foreign investment is skewed towards industries with high costs of pollution abatement, the results are not robust across specifications.
This article examines the role of trade policy regimes in conditioning the impact of foreign direct investment (FDI) on growth performance in investment receiving (host) countries through a case study of Thailand. The methodology involves estimating a growth equation, which provides for capturing the impact of FDI interactively with economic openness on economic growth, using data for the period 1970-99. The results support the 'Bhagwati' hypothesis that, other things being equal, the growth impact of FDI tends to be greater under an export promotion (EP) trade regime compared to an import-substitution (IS) regime.
This paper introduces the concept of a 'pollution terms of trade' index. It measures the environmental gains or losses that a country sustains from engaging in international trade. The index distinguishes between the trade composition effect and the environmental technology effect. Calculations of the trade composition effect reveal a gap between developed and developing nations. Copyright 1996 by Taylor and Francis Group
This paper examines the environmental effects associated with Mexico's participation in the North American Free Trade Agreement (NAFTA). The objective is to provide quantitative estimates of carbon dioxide (CO2) emissions from changes in the level and structure of production and consumption activity in Mexico following a liberalization of trade. The quantitative analysis was performed using input-output methods with fuel use modifications to account for CO2 emissions before and after NAFTA's implementation. As a result of NAFTA, CO2 emissions are expected to increase from the anticipated increase in the size of the Mexican economy. While total emissions increase as a result of tariff elimination, there is also a shift in the structure of production and final consumption away from those sectors that are the most CO2 intensive. Copyright 1995 by Taylor and Francis Group
This paper examines how the structure of manufacturing production varies, both across countries and through time, in relation to the toxic emissions of the component industries. Evidence is also presented on the connection between these variations and trade policy liberalization. Industrial emissions may be thought of as output multiplied by the pollution intensity of that output. In turn the pollution intensity of output derives from the mix of industrial products, the processes used to produce each of these goods, and treatment of the resultant waste from these processes. The scope of analysis is dictated by the nature of the data available, described later. Some of the elements likely to affect the pollution intensity of industrial production, before turning to the results are discussed. There are comments by R. Lopez on pp 87-88. -from Authors
There has been considerable controversy over the empirical significance of the theoretically predicted pollution haven hypothesis. Generally, empirical papers have failed to find an effect on industrial location of weaker or stricter environmental regulations. In this paper we find confirmation of theoretical predictions. We present a statistical test of the impact of environmental regulations on the capital movement of polluting industries. The empirical study is conducted by examining foreign direct investment (FDI) of several US industries, representing industries with high pollution control costs (chemicals and primary metals) as well as industries with more modest pollution control costs (electrical and non-electrical machinery, transportation equipment, and food products). At issue is the effect of the laxity of environmental regulation on FDI. As laxity is not directly observed, we posit two equations, one for FDI determination and one for pollutant emissions, a variable positively correlated with the unobserved variable. We use aggregate national sulfur emissions as the pollutant. Using instruments for the unobserved variable, the statistical results show that the laxity of environmental regulations in a host country is a significant determinant of FDI from the US for heavily polluting industries and is insignificant for less polluting industries.
The ‘pollution haven’ hypothesis refers to the possibility that multinational firms, particularly those engaged in highly polluting activities, relocate to countries with weaker environmental standards. Despite the plausibility and popularity of this hypothesis, the existing literature has found little evidence to support it. This Paper identifies four areas of difficulties that may have impeded the researcher’s ability to uncover this ‘dirty secret.’ This includes the possibility that some features of FDI host countries, such as bureaucratic corruption, may deter inward FDI, but are positively correlated with laxity of environmental standards. Omitting this information in statistical analyses may give rise to misleading results. Another potential problem is that country- or industry-level data, typically used in the literature, may have masked the effect at the firm level. In addition, the environmental standards of the host countries and pollution intensities of the multinational firms are not easy to measure. This study addresses these problems present in the earlier literature by taking explicitly into account corruption levels in host countries and using a firm-level data set on investment projects in 24 transition economies. With these improvements, we find some support for the ‘pollution haven’ hypothesis, but the overall evidence is relatively weak and does not survive numerous robustness checks.
The "pollution haven" hypothesis refers to the possibility that multinational firms, particularly those engaged in highly polluting activities, relocate to countries with weaker environmental standards. Despite the plausibility and popularity of this hypothesis, the existing literature has found only limited evidence to support it. To enhance our ability to detect the possible "dirty secret," this study makes improvements in four areas. First, we focus on investment flows from multiple countries to 25 economies in Eastern Europe and the former Soviet Union. Transition countries are a suitable region for studying this question, as they offer a large variation in terms of environmental standards. Second, we take into explicit account the effect of host country corruption. Third, we include information on both the polluting-intensity of the potential investor and the environmental stringency in the potential host country, which allows us to test whether dirty industries are relatively more attracted to locations with weak standards. And fourth, we rely on firm-level rather than industry-level data. Despite these improvements, we find no support for the "pollution haven" hypothesis. If anything, firms in less polluting industries are more likely to invest in the region. We find no systematic evidence that FDI from "dirtier" industries is more likely to go to countries with weak environmental regulations.
All goods and services produced in an economy are directly and/or indirectly associated with energy use and, according to the type of fuel utilized, with CO2 emissions as well. International trade is an important factor in shaping the industrial structure of a country and, consequently, in affecting a country's energy use and CO2 emissions. This study applies input–output techniques to the Brazilian economy to evaluate the total impacts of international trade on its energy use and CO2 emissions. A commodity-by-industry IO model in hybrid units (energy commodities in physical units and non-energy commodities in monetary units) is applied to the Brazilian economy in 1995. Results show that total energy embodied in the exports of non-energy goods of Brazil equals 831 PJ, while total carbon embodied is 13.5 MtC. These amounts are larger than the relevant amounts embodied in the imports of non-energy goods, respectively 679 PJ and 9.9 MtC. These figures are better understood by contrasting them with the total energy use and the corresponding total carbon emissions of the Brazilian economy in 1995 estimated by this work: 6781 PJ and 99.4 MtC, respectively. This means that international inflows and outflows of energy embodied in non-energy goods are in the order of 10 and 12% of the total energy use, while inflows and outflows of carbon embodied in non-energy goods are approximately 10 and 14% of the corresponding total carbon emissions of the Brazilian economy in 1995. The general picture is that Brazil is not only a net exporter of energy (153 PJ) and of carbon (3.6 MtC) embodied in the non-energy goods internationally traded by the country in 1995, but also that each dollar earned with exports embodied 40% more energy and 56% more carbon than each dollar spent on imports. These findings suggest that Brazilian policy-makers should be concerned about the extra impacts international trade policy may have on energy use and carbon emissions of the country.
The premise that trade suffers from the imposition of environmental policy has a strong element of a priori plausibility, but, surprisingly, has little empirical support. The present paper provides an empirical test of the hypothesis that stringent environmental policy has caused trade patterns to deviate in commodities produced by the world's "dirty" industries. The empirical tests are conducted using the cross-section Hechscher-Ohlin-Vanek model of international trade. It is not that the introduction of stringent environmental control measures has caused trade patterns to deviate from the Hechscher-Ohlin-Vanek predictions. Copyright 1990 by WWZ and Helbing & Lichtenhahn Verlag AG
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