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Foreign aid, economic globalization, and pollution
Abstract
This paper explores how trade and foreign direct investment (FDI) condition the effect of foreign aid on environmental protection in aid-recipient countries. We suggest that (1) environmental protection should be viewed as a public good and (2) all else equal, resource flows from abroad (via aid, trade, and FDI) influence governments' incentives to provide public goods. (3) Because these resources shape governments' incentives differently , their interactive effects should be examined. We begin with the assumption that developing country governments seek some optimal level of environmental protection, a level conditioned by their factor-intensive growth phase. We hypothesize that at low levels of export receipts or FDI inflows from the developed world, foreign aid is associated with superior environmental protection. This is because foreign aid, as an environmentally neutral addition to revenue, allows recipient governments to partially relax the trade-off between economic growth and environmental protection. As levels of export receipts or FDI inflows from the developed world increase, however, the salutary effect of foreign aid will diminish and eventually be reversed. This is because foreign aid mitigates the recipient government's dependence on traders and investors in the developed world, and concom-itantly reduces their pro-environmental policy leverage. Our analysis of 88 aid recipients, for the period 1980–2005, lends support to our argument.
... First, it attempts to analyze the dynamic relationship between urbanization, globalization, economic growth, energy consumption, and carbon dioxide emissions in the case of Mozambique. Second, previous studies measured globalization by trade openness in relation to an increase or decrease in environmental emissions (Antweiler, Copeland, and Scott Taylor 2001;Frankel and Romer 1999;Copeland and Scott Taylor 2003;Prakash and Potoski 2007;Le, Chang, and Park 2016), whereas this study uses the globalization index, which is constructed from three subindices (social, economic, and political globalization) from the KOF index to evaluate its impact on CO 2 emissions (Jorgenson and Givens 2014;Lim, Menaldo, and Prakash 2015;Lv and Xu 2018;Salahuddin et al. 2019). Third, the researcher used multivariate econometric techniques such as the Augmented Dickey-Fuller test (ADF) and Phillips-Perron (PP) unit root tests, the Johansen cointegration test, the autoregressive distributed lag (ARDL) bound test, and the Toda-Yamamoto causality test and then checked the impact countrywise. ...
... This might lead to worsening of the environmental quality of these cities as energy consumption rises as per capita income increases. This finding is consistent with the findings of other studies (Lim, Menaldo, and Prakash 2015;Lv and Xu 2018;Salahuddin et al. 2019). ...
... We can infer from the short-and long-run results that globalization significantly impacts CO 2 emissions in the long run in Mozambique. This finding is consistent with other studies (Jorgenson and Givens 2014;Lim, Menaldo, and Prakash 2015;Lv and Xu 2018;Salahuddin et al. 2019) (Table 7). The short-run results showed that CO 2 emissions are significantly and positively affected by urban population growth, access to electricity, and GDP per capita. ...
This study was designed to investigate the nexus between urbanization, globalization, and CO2 emissions in Mozambique using time series data for the period 1980–2013. A bound testing approach to cointegration and error correction models of an autoregressive distributed lag (ARDL) model was applied for long-run relationships, and the Toda–Yamamoto causality test was used for causal analysis. The ARDL coefficients indicated that GDP per capita, globalization, and urbanization induce CO2 emissions in the long run, whereas access to electricity reduces emissions. Moreover, access to electricity, GDP per capita, and urbanization enhance carbon emissions in the short run. A bidirectional causality exists between globalization and CO2 emissions. Thus, appropriate green development programs that promote renewable energy should be designed to enhance environmental quality in urban areas. Further, designing sustainable urban planning policies and maintaining a sustainable lifestyle are recommended.
... Studies of environmental politics often use SO 2 Intensity (e.g., Lim, Menaldo, & Prakash, 2015) and it is an appropriate measure for this study for several reasons. First, such emissions are visible to the public and to governments, fostering high levels of awareness (Cao & Prakash, 2010). ...
... Second, governments of the world have made strong and longstanding efforts to regulate SO 2 , relative to other pollutants, such as carbon dioxide (CO 2 ) or nitrous oxide (N 2 O). Finally, SO 2 emissions largely stem from activities associated with industrialization in developing countries (Lim et al., 2015). This measure is appropriate in the present study because, like SO 2 , the public health effects of environmental degradation are particularly apparent and, thus, salient to citizens and to governments representing those citizens. ...
... Several control variables are included in the models to isolate the rela- Population Density is also controlled for, as there is reason to suspect that this factor is closely linked to various types of pollution (Lim et al., 2015;McLeod et al., 2000;Raupach, Rayner, & Paget, 2010). ...
Over the past decade, China has become one of the largest trading partners to countries of Latin America and Sub‐Saharan Africa. A major concern is environmental degradation: much of this trade is composed of pollution‐intensive raw materials and Chinese traders do not promote the adoption of stringent environmental policies among trade partners, as the United States and the European Union do. The probable outcome for China's trade partners is a race to the bottom, whereby trade‐based competitive pressures lead governments to systematically weaken environmental regulations. However, this outcome may be moderated by good governance, as willing and able governments react to heightened pollution‐intensive trade with China by strengthening policies. This study considers whether sound governing institutions offset the harmful effects of trade with China on environmental policy outcomes, using a dataset covering 58 Latin American and Sub‐Saharan African countries over 10 years (2001–2010). Tests focus on the moderating effects of two facets of good governance: representativeness and bureaucratic capacity. The results demonstrate that trade with China does generate a race to the bottom in the environmental policies of partner countries. This effect is moderated by bureaucratic capacity, but not by representativeness.
... SSA is the second fastest globalized region in Africa with an average globalization index for this region of 41.97 during the period Responsible editor: Muhammad Shahbaz 2001(Ajidea et al. 2018. Such an increasing integration into the global economy has potential environmental effects (Jorgenson and Givens 2014;Li et al. 2015;Lim et al. 2015;Lv and Xu 2018;You and Lv 2018). The debate as to whether such effects are overall positive or negative is not resolved yet. ...
... In other words, globalization causes environmental degradation. Lim et al. (2015) suggested that at low levels of export receipts or FDI inflows from the developed world, foreign aid contributes towards improving environment. It is argued that foreign aid reduces the recipient government's dependence on traders and investors from the developed countries and enables countries to adopt countryspecific environmental policies. ...
Ecological modernization theories suggest that it is hard to determine a priori the environmental effects of urbanization, while neoliberal doctrine advocates a positive role of globalization in developing economies especially in terms of reducing poverty and inequality. Yet, the environmental effect of globalization is not unanimous. This study employs second-generation panel regression techniques that account for heterogeneous slope coefficients and cross-sectional dependence to estimate the impacts that urbanization and globalization have on CO2 emissions for a panel of 44 Sub-Saharan Africa (SSA) countries for the period 1984–2016. Also, a causality test that considers both these issues is performed. The estimated coefficient of urbanization is positive, statistically significant, and highly consistent across different estimation techniques. The magnitude of the coefficient and level of significance are different in different econometric estimations. In most specifications, the estimated coefficient on the globalization variable is statistically insignificant. Urbanization is found to cause emissions. The environmental implications of these results are discussed with a set of policy recommendations for an environmentally better SSA region.
... In a recent study carried out by Rivera and Oh (2013) state that European MNCs are more interested to invest in those countries where the environment regulations are more stringent than home country. A similar study by Lim et al. (2014) have found that at lower level of export receipts and Foreign Direct Investment (FDI) inflows, foreign aid act as an environment friendly tool but the result becomes reversed with the increase in FDI inflows and export earnings. Both higher economic growth and good environment quality are two important criteria for the survival of the mankind, so both should be given equal importance in the national plans. ...
121 The present study empirically investigates the impact of foreign aid on environmental quality in India with the presence of some linkage factors i.e. gross domestic product, trade liberalization, net forest depletion and total value added by the industrial sector. This study is based on the annual time series data covering the period from 1970-71 to 2010-11. By using the OLS technique, the study finds that impact of foreign aid on environment degradation is negative and statistically significant. However, aid helps in reduction of environment pollution in India. It concludes that deforestation, industrialization and economic growth are the major factors which responsible for environment degradation in India. This study suggests that, it is the responsibility of the government to make appropriate plans and programs to maintain a balance between growth challenges and environment challenges. Careful planning and systematic policies should be implemented to ensure that the green growth strategies do not result in a slow growth strategy.
... The environmental damage caused by resource extraction is disproportionately high in developing countries with weak institutions and low environmental protection standards (Bhattarai & Hammig, 2004;Tamazian & Rao, 2010;Johnson, 2019). The question of how environmental protection is addressed in the extractive sector in developing countries is therefore important (Slack, 2012;Lim et al., 2015). ...
... The development of economic globalization leading to increasing global pollution due to fossil fuel consumption has caused deep concern throughout the world [1]. Fossil resources coming to their end and the environmental dangers of such fuels has not only led to greenhouse gas emissions, resulting in endangering the health of communities, but also raises the issue of the uncertain future of the world's energy supply [2]. ...
Today, two-dimensional materials for use in energy devices have attracted the attention of researchers. Molybdenum disulfide looks promising as an electrode material with unique physical properties and a high exposed surface area. But there are still problems that need to be addressed. In this study, we prepared a hybrid containing MoS2, Fe3O4, and rGO by a two-step hydrothermal method. This nanocomposite is well structurally and morphologically identified, and then its electrochemical performance is evaluated for use in supercapacitors. According to the Galvanostatic charge-discharge results, this nanocomposite shows a good specific capacity, equivalent to 527 F g-1 at 0.5 mA cm-2. The results of the multi-cycles stability test (5000 cycles) provide a significant stability rate capability, which 93% of the electrode capacity remained after 5000 cycles. The reason for this could be the synergistic effect between rGO and MoS2 as well as between molybdenum and iron in the faradic reaction in the charge storage process. Fe3O4 and MoS2 provide electroactive sites for the faradic process and electrolyte accessibility and rGO supply conductivity.
... The urban population has positive and significant effect on environment degradation. The results of this study are in line with other studies like other studies 45,46 . There is vast literature available on globalization and environmental quality 47,48 which concluded like this study that globalization causes huge environmental deterioration. ...
Objectives: This study aims to check the impact of globalization and macroeconomic variables on environment degradation in low income countries. This study also tested the existence of Kuznets curve. Methods/Statistical Analysis: Greenhouse gases emission is used as proxy of environment degradation. Panel data was taken from 1996 to 2015 for Zimbabwe, and Benin. After checking the cross sectional dependence, Cross Sectional Augmented Dickey Fuller (CADF) panel unit root test is used to check the stationary of the variables then Pedroni Panel Co-Integration Test and Fully Modified Ordinary Least Square (FMOLS) are applied. Findings: Co-integration is found among low income countries. Globalization, urban population and renewable energy have positive effect on environment degradation while innovation index has negative effect on greenhouse gases emission. The inverted U shaped relationship is found between environment and globalization which means that globalization decrease environment degradation after reaching at specific level. Application/Improvements: To improve the environment, globalization should be increased continuously because after reaching at certain level, it will decrease the environmental degradation.
... Whereas, GDP, forest depletion and trade liberalization positively contribute to the degradation of the environmental quality. Lim et al. (2014) test the hypotheses that foreign aid positively affects the environmental quality when the recipient country is less dependent on the globalization flow from the north and negatively affect the environment when the recipient country has high economic dependence on the globalization flow from the north. The authors have used SO 2 as a measure of environmental quality and FDI and exports are used as a measure of globalization flows. ...
The paper examines the relationship among foreign aid, per capita GDP, energy consumption, foreign direct investment and carbon emissions in Pakistan. Autoregressive distributed lag (ARDL) bounds testing technique is used for empirically testing using annual data from 1972 to 2013. The study uses carbon dioxide emission (CO2) as an indicator of environment quality. The two components of foreign aid (foreign loans and foreign grants) are used to measure the environmental impact of foreign assistance in Pakistan. The study finds that energy consumption, per capita GDP and FDI contribute positively to raise the carbon emissions in the country. Furthermore, foreign loans and grants are also found significant contributors to the degradation of environmental quality in case of Pakistan. Similarly, the short run results of the model indicate that the signs of the coefficients are consistent with the long run estimates. On the basis of its findings, the study suggests that effective policies be followed for reducing (CO2) emissions along with regulating FDI-environment and per capita GDP-environment relationship.
... Because both trade and aid can influence domestic policy outcomes in recipient/exporting nations, theories linking external economic flows with internal policy choices must address the multiplicity of external pressures (Lim, Menaldo, & Prakash, 2014). We do so by asking how, in the context of workers' rights, foreign aid and trade shape governments' incentives to enact laws vis-a `-vis their labor force. ...
This article aims to investigate how climate aid devoted to renewable energy contributes to CO2 emissions in recipient countries. Indeed, since the beginning of the 2000s, international agreements between developed and developing countries have promoted the provision of financial aid to the second group of countries to help them fight global warming. We first discuss stylized facts on climate finance devoted to renewable energy and its impact on CO2 emissions. We can see that while the first variable is quickly increasing, the second variable displays a decrease from 2010. Econometric results show that climate aid for renewable energy has a slight impact on CO2 emissions reduction, especially after a threshold. However, despite this optimistic result, the impact is transitory. Indeed, this result can be explained by the fact that developing countries are more preoccupied by economic efficiency than ecological efficiency. However, in countries where a carbon tax is set, the tax contributes to reducing CO2 emissions. Finally, we show that ecological technologies imported through foreign direct investment do not yet play a significant role in reducing CO2 emissions or CO2 intensity.
Dependency theory argues that due to unequal economic relationships, including exports, multinational corporations, and loans from multilateral lending institutions, high-income nations exploit the labor and resources of low- and middle-income nations. We extend this line of reasoning to the United States Export–Import Bank, as it has recently come under scrutiny for its lending in the forestry sector of low- and middle-income nations. Although this concern has been raised, we are not aware of any cross-national research that empirically evaluates if their investments adversely impact forests. Therefore, we examine the impact of the United States Export–Import Bank lending in the forestry sector on forest loss. Using a two-stage instrumental variable regression model to account for possible donor selection bias as well as ordinary least squares regression to analyze data for 78 low- and middle-income nations, we find that export credit agency financing is related to increased forest loss from 2001 to 2014. Our findings are consistent with dependency theory ideas that economic linkages with high-income nations increase forest loss in low- and middle-income nations.
Environmental racism plagues the history and contemporary realities of globalization. To control resources, stake holders seek to dominate lands and peoples in order to produce at a maximum profit. Left in the wake of consumerism are populations of ethnic, religious, and racial minorities. These groups traditionally have an attachment to ancestral lands they wish to protect or are unable to compete with large corporations who establish environmentally unfriendly conditions and unfair working situations for underserved populations. Since a mentality of ‘Not in My Backyard’ (NIMBY) perpetuates apathy for addressing iniquities, remediation of these issues has been slow to non-existent. The value of exploring specific instances and recurring trends within regions of inequity and destructive ecological policy cannot be understated. Without awareness, change is impossible. Inherently, methodologies used to analyze current global systems are imperialist in nature and create further distance from the subjects exposed to detrimental corporate and policy decisions. This research provides an historic overview of globalized environmental racism in order to address and combat negative choices affecting marginalized communities throughout the world.
According to the Green Solow model, the rise or fall of emissions over time depends on a scale effect and a technique effect, and, if the latter effect is held constant, changes in population growth will influence profiles of the environmental Kuznets curve (EKC). Utilizing four alternative measures of population size as threshold variables, this paper reexamines the effect of foreign direct investment (FDI) on carbon dioxide () emissions and further tests EKC profiles for different population sizes. Our threshold test shows a double-threshold effect on emissions, implying the existence of three population regimes: least, moderately, and most populated. Our results show that an inverted U-shaped EKC relationship exists between emissions and economic development across different population regimes, when population density and absolute population in turn are used as a threshold variable. In addition, in the least populated regime, emissions significantly converge with increasing FDI.
This research note seeks to calculate the volume of South-South
foreign direct investment flows in the 1990s. Using data from several sources, indirect estimates suggest that more than one-third of such inflows into developing economies have originated
in other developing economies. South-South foreign direct
investment is driven by similar “push” and “pull” factors that
drive North-South flows. A non-negligible part of South-South
investment, however, may reflect round tripping of own capital
motivated by policies that favor foreign investors over
domestic ones.
Current international relations theory struggles to explain both the autonomy and transformation of international organizations (IOs). Previous theories either fail to account for any IO behavior that deviates from the interests of member states, or neglect the role of member states in reforming IO institutions and behavior. We propose an agency theory of IOs that can fill these gaps while also addressing two persistent problems in the study of IOs: common agency and long delegation chains. Our model explains slippage between member states' interests and IO behavior, but also suggests institutional mechanisms - staff selection, monitoring, procedural checks, and contracts - through which states can rein in errant IOs. We evaluate this argument by examining multiple institutional reforms and lending patterns at the World Bank from 1980 to 2000.
Multiplicative interaction models are common in the quantitative political science literature. This is so for good reason.
Institutional arguments frequently imply that the relationship between political inputs and outcomes varies depending on the
institutional context. Models of strategic interaction typically produce conditional hypotheses as well. Although conditional
hypotheses are ubiquitous in political science and multiplicative interaction models have been found to capture their intuition
quite well, a survey of the top three political science journals from 1998 to 2002 suggests that the execution of these models
is often flawed and inferential errors are common. We believe that considerable progress in our understanding of the political
world can occur if scholars follow the simple checklist of dos and don'ts for using multiplicative interaction models presented
in this article. Only 10% of the articles in our survey followed the checklist.
A simple “Bread and Peace” model shows that aggregate votes for President in
postwar elections were determined entirely by weighted-average growth of real disposable
personal income per capita during the incumbent party’s term and the cumulative numbers
of American military personnel killed in action as a result of U.S. intervention in the Korean
and Vietnamese civil wars. The model is subjected to robustness tests against twenty-two
variations in functional form inspired by the extensive literature on presidential voting. Not
one of these variations adds value to the Bread and Peace model or significantly perturbs its
coefficients.
This study addressed the question of whether firms in a competitive, globally integrated environment face a ''liability of foreignness'' and to what extent either importing home-country organizational capabilities or copying the practices of successful local firms can help them overcome this liability. Predictions were tested with a paired sample of 24 foreign exchange trading rooms of major Western and Japanese banks in New York and Tokyo. Results support the existence of a liability of foreignness and the role of a firm's administrative heritage in providing competitive advantage to its multinational subunits. They also highlight the difficulty firms face in copying organizational practices from other firms.
In this study, we examine how differences in environmental regulation characteristics are linked to multinational corporations’ (MNCs) foreign market entry (FME) investments decisions around the world. We rely on a data set with 29,303 observations from 94 European Fortune Global 500 companies operating across 77 countries during the period 2001–2007. We found that MNCs are more likely to enter countries with more certain—i.e., clearer and more stable—environmental regulations than those of their home countries. Results also suggest that there is a higher level of MNC entry into foreign countries with environmental regulations that are more stringent than those of their home countries. This finding challenges the controversial but commonly held view that more stringent environmental regulations deter MNCs’ FME investments. Notably, the magnitude of the regulatory certainty relationship with MNCs’ FME investments is larger than that of regulatory stringency. Findings also indicate that the increased tendency of MNCs to enter countries with more stringent environmental regulations is higher in more democratic countries and for cleaner industry firms.
In a dramatic example of policy diffusion, the past three decades have witnessed the spread of automobile emission standards throughout the world. Contrary to fears that global competition would produce a race to the bottom, there appears to be a race to the top, not only among rich countries but also among poor ones. Using econometric analysis of the adoption of automobile emission standards over the past twenty years for 129 countries, the author argues that this global diffusion results from countries’ efforts to stay competitive in the international market. Due to the pressure from importing countries that have adopted stringent emission standards, even developing countries have rapidly moved to adopt rich country standards. The evidence shows that adoption of automobile emission standards correlates with an increase in the total value of automobile exports. Under some conditions, economic incentives in a global market can be a complement to environmental protection.
The article compares different political systems with respect to one property: their capacity to produce policy change. I define the basic concept of the article, the ‘veto player’: veto players are individual or collective actors whose agreement (by majority rule for collective actors) is required for a change of the status quo. Two categories of veto players are identified in the article: institutional and partisan. Institutional veto players (president, chambers) exist in presidential systems while partisan veto players (parties) exist at least in parliamentary systems. Westminster systems, dominant party systems and single-party minority governments have only one veto player, while coalitions in parliamentary systems, presidential or federal systems have multiple veto players. The potential for policy change decreases with the number of veto players, the lack of congruence (dissimilarity of policy positions among veto players) and the cohesion (similarity of policy positions among the constituent units of each veto player) of these players. The veto player framework produces results different from existing theories in comparative politics, but congruent with existing empirical studies. In addition, it permits comparisons across different political and party systems. Finally, the veto player framework enables predictions about government instability (in parliamentary systems) or regime instability (in presidential systems); these predictions are supported by available evidence.
A large body of scholarship finds that there is a relationship between reliance on natural resources and authoritarianism. Extant cross-country findings are derived, however, from panel regressions that assume random effects, where the dataset’s time dimension is relatively short. Because natural resource reliance is not an exogenous variable that is randomly assigned, this is not an effective strategy to uncover causal relationships. Indeed, numerous sources of bias may be driving the results, the most serious of which is omitted variable bias induced by the time-invariant differences between countries. We therefore develop unique historical datasets, employ time-series centric techniques, and operationalize explicitly specified counterfactuals. This allows us properly test for long-run relationships between resource reliance and regime type within countries over time, therefore allowing us to minimize the sources of bias that beset the extant literature. Our results indicate that increases in resource reliance are not associated with the undermining of democracy, or less complete transitions from authoritarianism to democracy. If anything, in many specifications we generate results that suggest a resource blessing.
In a relatively small but growing body of literature in political science and environmental studies, scholars debate the effect of democracy on environmental degradation. Some theorists claim that democracy reduces environmental degradation. Others argue that democracy may not reduce environmental degradation or may even harm the environment. Empirical evidence thus far has been limited and conflicting. This article seeks to address the democracy–environment debate. We focus on the effect of political regime type on human activities that directly damage the environment. Our discussion of the theoretical literature identifies different causal mechanisms through which democracy could affect environmental degradation. The empirical analysis focuses on the net effect of these competing mechanisms. We examine statistically the effect of democracy on five aspects of human-induced environmental degradation—carbon dioxide emissions, nitrogen dioxide emissions, deforestation, land degradation, and organic pollution in water. We find that democracy reduces all five types of environmental degradation. While the substantive effect of democracy is considerable, it varies in size across different types of environmental degradation. We also find nonmonotonic effects of democracy that vary across the environmental indicators.
Every year, billions of dollars of environmental aid flow from the rich governments of the North to the poor governments of the South. Why do donors provide this aid? What do they seek to achieve? How effective is the aid given? And does it always go to the places of greatest environmental need? From the first Earth Summit in Stockholm in 1972 to the G8 Gleneagles meeting in 2005, the issue of the impact of aid on the global environment has been the subject of vigorous protest and debate. How much progress has there been in improving environmental protection and clean-up in the developing world? What explains the patterns of environmental aid spending and distribution - is it designed to address real problems, achieve geopolitical or commercial gains abroad, or buy political mileage at home? And what are the consequences for the estimated 4 million people that die each year from air pollution, unsafe drinking water, and lack of sanitation? All of these questions and many more are addressed in this groundbreaking text, which is based on the authors' work compiling the most comprehensive dataset of foreign aid ever assembled. By evaluating the likely environment impact of over 400,000 development projects by more than 50 donors to over 170 recipient nations between 1970 and 2001, Greening Aid represents a unique, state of the art picture of what is happening in foreign assistance, and its impact on the environment. Greening Aid explains major trends and shifts over the last three decades, ranks donors according to their performance, and offers case studies which compare and contrast donors and types of environmental aid. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780199213948/toc.html
Despite increased academic and practitioner interest in codes of conduct, there has been little research into the actual compliance
of suppliers in developing countries with the codes of conduct of multinational corporations (MNCs). This paper addresses
this lack by analysing Chinese suppliers’ level of compliance with Swedish toy retailers’ codes of conduct. Based on unannounced
and unofficial interviews with employees of Chinese suppliers, the study shows that all of the nine studied suppliers breached
some of the standards in the toy retailers’ codes, with over two-thirds of the suppliers not complying with the majority of
the studied standards. While there are different explanations of this lack of compliance, the main explanation seems to be
that Chinese suppliers successfully deceive toy retailers’ monitoring organisations by decoupling the formal monitored part
of their organisation from the actual operational part of their organisation. The paper concludes with a discussion of how
to increase compliance with MNCs’ codes of conduct.
Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented
in the “curse of natural resources” literature. In this paper we discuss this effect and document its magnitude. Using panel
data for 108 recipient countries in the period 1960–1999, we find that foreign aid has a negative impact on institutions.
In particular, if the foreign aid over GDP that a country receives over a period of 5years reaches the 75th percentile in
the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison,
we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil.
The question posed by the title of this article has been at the heart of debates about pollution havens, industrial flight to developing countries, and now carbon "leakage." Is the United States increasingly importing goods whose production generates relatively more pollution, rather than manufacturing those goods domestically? The consensus seems to be "yes," at least judging by the many public policies designed to counteract this offshoring of pollution. The evidence, however, is mixed, at least in part because empirical research has focused on a slightly different set of questions. After reviewing this research, I present a simple methodology for answering the specific question asked in the title. Using the World Bank's 1987 inventory of industry-specific U.S. air pollution emissions intensities, Bureau of Economic Analysis input--output tables, and data on U.S. imports, I show that from 1972 to 2001 the composition of U.S. imports shifted toward relatively clean goods, rather than polluting goods. Perhaps more surprising, this "green" shift of U.S. imports is even larger than the corresponding green shift of U.S. domestic manufacturing. Based on this analysis, the article concludes that over the past thirty years, the United States does not appear to have been offshoring pollution by importing polluting goods. Copyright 2010, Oxford University Press.
Multilateral development banks (MDBs) are increasingly expected to address environmental issues in their economic development lending. Yet the banks have been accused of failing to implement their own environmental policies, thereby contributing to environmental degradation in borrowing countries. In this book Tamar Gutner analyzes the environmental policies of three MDBs: the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank. She compares their performance in Central and Eastern Europe, where the need for economic and environmental reform has been particularly urgent, and where these MDBs are among the largest donors. Gutner finds many obstacles to efforts to "green" the three banks, most notably a mismatch between the environmental mandates and existing patterns of institutional design and incentives. The depth and scope of the banks' green activities reflect the degree of shareholder commitment to environmental issues and how demand-driven the MDB is designed to be. Surprisingly, the World Bank, the most scrutinized and criticized of the three MDBs, has been rather more responsive than its counterparts to its environmental mandate in the region. The discussion is framed by larger explorations of the behavior of international organizations and the sources of their innovation and inertia in addressing new policy issues. Gutner demonstrates the need to examine the impact of different stages of the policy process on new mandates and to incorporate both political and institutional variables when developing theories about the behavior of international institutions.
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371–1395); Arellano and Bond (1991, Review of Economic Studies 58: 277–297); Arellano and Bover (1995, Journal of Econometrics 68: 29–51); and Blundell and Bond (1998, Journal of Econometrics 87: 115–143), are increasingly popular. Both are general estimators designed for situations with “small T, large N″ panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano–Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use.
The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Meanwhile they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.
Though industrialized countries are usually the ones indicted when environmental pollution is discussed, over the few last years the rate of emissions in developing countries has increased by a startling amount. The fallout from this increase is evidenced by the struggle of cities like Beijing to improve their air quality. Yet there also exist developing countries such as Thailand that have managed to limit their emissions to more tolerable levels, raising the question: why are some developing countries more willing or able to take care of their environment than others? In this volume, Gabriele Spilker proposes two factors for the differences in developing countries' environmental performance: integration into the international system and domestic political institutions. Focusing on developing countries generally but also closely examining important global powers such as China and India, Spilker employs a rigorous quantitative analysis to demonstrate the importance of considering various aspects of the international system, in order to draw more comprehensive conclusions about how globalization affects environmental performance. She asserts that democratic political institutions can shield developing countries from the negative consequences of either trade or foreign direct investment. But at the same time, developing countries, by avoiding demanding commitments, are more likely to use environmental treaties as a cover than as a real plan of action. Adding a new dimension to the existing body of research on environmental quality and commitment, Spilker convincingly demonstrates how international and domestic political factors interact to shape developing countries' ability and willingness to care for their natural environment.
Many fear that the mobility of corporate investment creates a "race to the bottom" in international environmental regulations as firms invest in the countries with the weakest environmental protections. But the relationship between environmental regulation and investment is poorly understood. I hypothesize that intercountry institutional distance and firm environmental capabilities moderate the relationship between the stringency of a country's environmental regulations and firms' investment in that country. Analysis of investment in the international automobile industry supports these hypotheses. Study results suggest that attracting corporate investment and preserving local environmental quality need not be opposing policy objectives.
We examine the reduced-form relationship between per capita income and various environmental indicators. Our study covers
four types of indicators: urban air pollution, the state of the oxygen regime in river basins, fecal contamination of river
basins, and contamination of river basins by heavy metals. We find no evidence that environmental quality deteriorates steadily
with economic growth. Rather, for most indicators, economic growth brings an initial phase of deterioration followed by a
subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before
a country reaches a per capita income of $8000.
This book examines whether the mechanisms of accountability characteristic of democratic systems are sufficient to induce the representatives to act in the best interest of the represented. The first part of the volume focuses on the role of elections, distinguishing different ways in which they may cause representation. The second part is devoted to the role of checks and balances, between the government and the parliament as well as between the government and the bureaucracy. The contributors of this volume, all leading scholars in the fields of American and comparative politics and political theory, address questions such as, whether elections induce governments to act in the interest of citizens. Are politicians in democracies accountable to voters in future elections? If so, does accountability induce politicians to represent citizens? Does accountability limit or enhance the scope of action of governments? Are governments that violate campaign mandates representative? Overall, the essays combine theoretical discussions, game-theoretic models, case studies, and statistical analyses, within a shared analytical approach and a standardized terminology. The empirical material is drawn from the well established democracies as well as from new democracies.
Are violators of international human rights norms punished with lower levels of foreign aid? Despite their abstract preferences, governments often lack the incentive to punish norm violators bilaterally. Multilateral lending institutions, such as the World Bank, could fill the void if they wanted to consider human rights abuses and could bypass restrictions on evaluating the political character of recipients. This article argues that `shaming' in the United Nations Commission on Human Rights, through resolutions that explicitly criticized governments for their human rights records, provided substantive information about rights abuses and gave political cover for the World Bank and other liberal multilateral aid institutions seeking to sanction human rights violators. Statistical analyses support these theoretical claims. The adoption of a UNCHR resolution condemning a country's human rights record produced a sizeable reduction in multilateral, and especially World Bank, aid but had no effect on the country's aggregate bilateral aid receipts. The analyses also support predictions that `objective' measures of human rights have no independent effect on multilateral aid allocations. The findings, which are robust to different model techniques and specifications, suggest that punishment for violating international human rights norms is selective, that international organizations play an important role in the selection process and, thus, that seemingly symbolic resolutions of a politically motivated IO can carry tangible consequences.
Globalization critics argue that international trade spurs a race to the bottom among national environmental standards. ISO 14001 is the most widely adopted voluntary environmental regulation which encourages firms to take environmental action beyond what domestic government regulations require. Drawing on a panel study of 108 countries over seven years, we investigate conditions under which trade linkages can encourage ISO 14001 adoption, thereby countering environmental races to the bottom. We find that trade linkages encourage ISO 14001 adoption if countries' major export markets have adopted this voluntary regulation.
Dramatic world change has stimulated interest in research questions about the dynamics of politics. We have seen increases in the number of time series data sets and the length of typical time series. But three shortcomings are prevalent in published time series analysis. First, analysts often estimate models without testing restrictions implied by their specification. Second, researchers link the theoretical concept of equilibrium with cointegration and error correction models. Third, analysts often do a poor job of interpreting results. The consequences include weak connections between theory and tests, biased estimates, and incorrect inferences. We outline techniques for estimating linear dynamic regressions with stationary data and weakly exogenous regressors. We recommend analysts (1) start with general dynamic models and test restrictions before adopting a particular specification and (2) use the wide array of information available from dynamic specifications. We illustrate this strategy with data on Congressional approval and tax rates across OECD countries.
Competition to attract foreign direct investment (FDI) creates opportunities for multinational enterprises (MNEs) to diffuse corporate management practices from their countries-of-origin (home countries) to countries hosting their foreign operations. We examine conditions under which MNEs transfer corporate environmental practices from home countries to host countries. Our focus is on ISO 14001, the most widely adopted voluntary environmental program in the world. We examine inward FDI stocks and ISO 14001 adoption levels for a panel of 98 countries, and a subset of 74 developing countries, for the period 1996–2002. We find support for the country-of-origin argument in that inward FDI stocks are associated with higher levels of ISO 14001 adoption in host countries only when FDI originates from home countries that themselves have high levels of ISO 14001 adoption. Countries’ ISO adoption levels are associated not with how much FDI host countries receive overall but from whom they receive it. Three implications emerge from this study: (1) FDI can become an instrument to perpetuate divergence in corporate practices across the world; (2) economic integration via FDI can create incentives for firms to ratchet up their environmental practices beyond the legal requirements of their host countries; (3) instead of racing down to match the less stringent corporate practices prevalent in developing countries, developed countries can employ FDI outflows to ratchet up corporate practices abroad given that developing countries are net recipients of developed countries’ FDI outflows.
Aid dependence can potentially undermine the quality of governance and public sector institutions by weakening accountability, encouraging rent-seeking and corruption, fomenting conflict over control of aid funds, siphoning off scarce talent from the bureaucracy, and alleviating pressures to reform inefficient policies and institutions. Analyses of cross-country data in this paper provide evidence that higher aid levels erode the quality of governance, as measured by indices of bureaucratic quality, corruption, and the rule of law. These findings support the need for donors to develop less costly and less intrusive ways of disseminating state-of-the-art knowledge on public sector reform in developing countries.
Previous research has found that foreign-owned establishments often lack specific capabilities needed to respond to local business conditions and are held to a higher standard by local stakeholders. These establishments compensate, however, by possessing offsetting capabilities such as technological excellence. In this article, we investigate how these conflicting forces shape the environmental conduct of foreign-owned facilities. Using data from the Environmental Protection Agency, we find that foreign-owned establishments generate more waste yet manage more waste than U.S.-owned establishments. We also find evidence that both domestic and foreign-owned firms generate more waste if they operate multiple facilities across multiple jurisdictions in the United States. Copyright © 2001 John Wiley & Sons, Ltd.
The third edition of Multinational Enterprise and Economic Analysis surveys the contributions that economic analysis has made to our understanding of why multinational enterprises exist and what consequences they have for the workings of the national and international economies. It shows how economic analysis can explain multinationals' activity patterns and how economics can shed conceptual light on problems of business policies and managerial decisions arising in practice. It addresses the welfare problems arising from multinationals' activities and the logic of governments' preferences and choices in their dealings with multinationals. Suitable for researchers, graduates and upper-level undergraduates. The third edition of this highly accessible book incorporates the many additions to our knowledge of multinationals accumulated in research appearing in the past decade.
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371-1395); Arellano and Bond (1991, Review of Economic Studies 58: 277-297); Arellano and Bover (1995, Journal of Econometrics 68: 29-51); and Blundell and Bond (1998, Journal of Econometrics 87: 115-143), are increasingly popular. Both are general estimators designed for situations with "small T , large N" panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano-Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use. Copyright 2009 by StataCorp LP.
This article examines the relationship between foreign direct investment and host countries’ contracting institutions, the
rule systems which govern commercial transactions between private actors. Given their liability of foreignness and costly
exit options, we suggest that multinational corporations have incentives to influence the formal contracting environment in
host countries. Further, host governments are more likely to respond to multinationals’ wishes when they are more dependent
on foreign capital markets. We draw on the World Bank’s Lex Mundi dataset (Djankov et al. 2003) on micro-level contracting environment for private actors. Our analysis of a cross section of 98 developing countries suggests
that FDI is associated with lower contract enforcement costs, particularly when the host country is more indebted.
KeywordsContract enforcement-Foreign investment-Globalization
We empirically test existing theories on the provision of public goods, in particular air quality, using data on sulfur dioxide (SO2) concentrations from the Global Environment Monitoring Projects for 107 cities in 42 countries from 1971 to 1996. The results are as follows: First, we provide additional support for the claim that the degree of democracy has an independent positive effect on air quality. Second, we find that among democracies, presidential systems are more conducive to air quality than parliamentary ones. Third, in testing competing claims about the effect of interest groups on public goods provision in democracies we establish that labor union strength contributes to lower environmental quality, whereas the strength of green parties has the opposite effect.
In the early 1990s, donor countries tied approximately 50% of their foreign aid to exports. The export stimulation of aid may have exceeded the amount that is directly tied. This paper uses the gravity model of trade to statistically test the link between aid and export expansion. The results suggest that aid is associated with an increase in exports of goods amounting to 133% of the aid. The paper also makes comparisons among donors and finds that Japan, which has drawn harsh criticism for using aid to gain unfair trade advantages, derives no more merchandise exports from aid than the average donor.
In an infinite-horizon stochastic model, a coup not only disciplines a dictator's policy towards a group of “kingmakers”, but also enables a kingmaker to become a dictator. Greater competition for the dictator's position, a lower impact of the dictator's policy on the kingmakers, or lower risks of staging a coup raises the benefit of a coup relative to its opportunity cost and so raises the probability of a coup. Since periodic shocks affect the efficacy of the dictator's policy, a bad enough shock makes it too costly for even talented dictators to avert a coup. More talented dictators are able to survive more negative shocks, so the worst shock in a dictator's reign is informative about the probability of a coup. Conditional on the worst shock, the probability of a coup is independent of a dictator's duration in office. The unconditional probability declines with duration.
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.
Many developing-country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability and may affect government spending on development activities-at least in the short run. This article investigates whether donors use aid to compensate recipient nations for lost trade revenue or perhaps to reward them for moving toward freer trade regimes. The authors do not find empirical evidence supporting such motives. This is of some concern because binding government revenue constraints may hinder development prospects of some poorer nations. The authors use fixed effects to control for the usual political, strategic, and other considerations for aid allocations.
This research note examines whether trade competition abets regulatory races in the environmental area. To analyze trade competition, we develop a new measure, structural equivalence, which assesses competitive threats that a country faces from other countries whose firms export the same products to the same destination countries. Employing this new measure, we analyze air pollution intensity (sulfur dioxide or SO2) and water pollution intensity (biochemical oxygen demand or BOD) for a panel of 140 countries for the time period 1980 2003. We find that trade competition is a significant predictor of water pollution intensity among structurally equivalent countries. We then test separately whether trade competition abets upward and downward regulatory races. We find that in the case of water pollution, countries respond symmetrically to downward and upward races, that is, they follow their structurally equivalent competitor countries both when they ratchet down their regulations and when they ratchet up regulations. In the case of air pollution, however, countries are responsive to downward policy changes only in competitor countries.
The notable increases in funding from various donors for health over the past several years have made examining the effectiveness of aid all the more important. We examine the extent to which donor funding for health substitutes for--rather than complements--health financing by recipient governments. We find evidence of a strong substitution effect. The proportionate decrease in government spending associated with an increase in donor funding is largest in low-income countries. The results suggest that aid needs to be structured in a way that better aligns donors' and recipient governments' incentives, using innovative approaches such as performance-based aid financing.
Many panel data sets encountered in macroeconomics, international economics, regional science, and finance are characterized by cross-sectional or "spatial" dependence. Standard techniques that fail to account for this dependence will result in inconsistently estimated standard errors. In this paper we present conditions under which a simple extension of common nonparametric covariance matrix estimation techniques yields standard error estimates that are robust to very general forms of spatial and temporal dependence as the time dimension becomes large. We illustrate the relevance of this approach using Monte Carlo simulations and a number of empirical examples. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog