Economic development, environmental regulation, and the international migration of toxic industrial pollution : 1960-88

Several previous studies have asked whether environmental controls imposed in the industrial economies are diverting investments in pollution-intensive activities off-shore. Broadly, these studies conclude that direct investment does not appear to be stimulated by such regulations, partly because the cost of emission controls is generally a tiny fraction of operating costs. Yet direct investment reflects only part of what may be happening to world production patterns. Technology transfers may occur with no simultaneous direct investments, and production may readily shift toward a different global distribution without either direct investment or technology transfer. The authors attempt a general test of the displacement hypothesis, developing time series estimates of manufacturing pollution intensity for a large sample of developed and developing countries between 1960 and 1988. Among their conclusions: As a result of shifts in industrial composition, total manufacturing emissions relative to GDP grow faster than GDP at lower levels of per capita income and slower than GDP at higher levels of income. This happens because manufacturing has a declining share of GDP at higher income levels, not because of any shift toward a cleaner mix of manufacturing activities. The more rapidly growing high-income countries have actually enjoyed negative growth in toxic intensity of their manufacturing mix. Stricter regulation of pollution-intensive production in the OECD countries appears to have led to significant locational displacement, with consequent acceleration of industrial pollution intensity in developing countries. The poorest economies seem to have the highest growth in toxic intensity. One cannot, of course, be certain of the causal connection. Pollution intensity has grown most rapidly in developing economies that are relatively closed to world market forces. Relatively closed, fast-growing economies experienced rapid structural transitions toward greater toxic intensity. The opposite seems to have been true for more open economies.