| Abstract: |
One of the most contentious debates today is whether pollution-intensive
industries from rich countries relocate to poor countries with weaker
environmental standards, turning them into “pollution havens.” Empirical
studies to date show little evidence to support the pollution haven
hypothesis, but suffer potentially from omitted variable bias, specification,
and measurement errors. Dean, Lovely, and Wang estimate the strength of
pollution-haven behavior by examining the location choices of equity joint
venture (EJV) projects in China. They derive a location choice model from a
theoretical framework that incorporates the firm’s production and abatement
decision, agglomeration, and factor abundance. The authors estimate
conditional logit and nested logit models using new data sets containing
information on a sample of EJV projects, effective environmental levies on
water pollution, and estimates of Chinese pollution-intensity for 3-digit ISIC
(International Standard Industrial Classification) industries. Results from
2,886 manufacturing joint venture projects from 1993–96 show that EJVs from
all source countries go into provinces with high concentrations of foreign
investment, relatively abundant stocks of skilled workers, concentrations of
potential local suppliers, special incentives, and less state ownership.
Environmental stringency does affect location choice, but not as expected. Low
environmental levies are a significant attraction only for joint ventures in
highly-polluting industries with partners from Hong Kong, Macao, and Taiwan
(China). In contrast, joint ventures with partners from OECD sources are not
attracted by low environmental levies, regardless of the pollution intensity
of the industry. The authors discuss the likely role of technological
differences in explaining these results. This paper—a product of the
Infrastructure and Environment Team, Development Research Group—is part of a
larger effort in the group to understand the impact of environmental policies
in developing countries. |