TCS Daily

Smoke and Mirrors

By Jan Arlid Snoen - December 19, 2003 12:00 AM

 OSLO -- One of the most persistent myths spread by the anti-globalization movement is that, "resources move from the poor to the rich, and pollution moves from the rich to the poor," as the Indian environmental activist Vandana Shiva put it. But there is a slight problem with these often voiced complaints about environmental dumping and creation of "pollution havens" in poor countries: Researchers can find only the faintest evidence to support them. Poor countries are attractive locations for businesses mainly because of low wages, not lax environmental standards. That's why labor-intensive -- not pollution-intensive -- processes move there.

A number of studies -- among them by Håkan Nordström and Scott Vaughan for the WTO and Gunnar Eskeland (World Bank) and Ann E. Harrison (Columbia University) -- show that only very seldom are the cost differentials between environmental regulation regimes large enough to warrant migration of polluting industries. Several studies show that when Western companies build factories in developing countries, they normally bring their best and most modern technology and often follow Western environmental standards, irrespective of local regulations. As Eskeland and Harrison point out, foreign-owned industrial plants are in general significantly less polluting than comparable plants owned by locals.


The import of Western standards and know-how on the back of Foreign Direct Investment (FDI) is one reason countries can expand their heavy industry while containing or even reducing environmental degradation. David Wheeler of the World Bank has studied concentrations of particulate matter in three industrial regions in Brazil, China and Mexico. Particulates were chosen because these emissions are especially damaging and associated with significant health risks. The three countries were chosen because they account for almost half of global FDI in developing countries, and have decent time series for air quality measurement. Wheeler's findings are quite striking and similar in all three areas. When FDI goes up, particulate concentrations fall significantly, often by more than half.


Another interesting study was published by the National Bureau of Economic Research earlier this year. In addition to summing up research made by others, the two Swiss scientists, Jean-Marie Grether and Jaime de Melo, presented evidence on production and international trade flows in five heavily polluting industries for 52 countries over the period 1981-98. This sample covers the bulk of worldwide production and trade in polluting products.


The researchers found "no evidence of trade flows being significantly driven by the regulatory gap." Although developing countries' share of exports of polluting products has increased, this increase is smaller than their overall export growth, meaning that the comparative advantage of polluting industries in developing countries has decreased.


Developing countries world trade share, percent


Polluting products

All products
















Average annual growth rate





Source: Grether & de Melo, 2003


Perhaps the most surprising finding is that developing countries import many more polluting products than they export, and this import increases more than average import volume. Contrary to what most people seem to think, developing countries are not becoming dirty sweatshops for the benefit of consumers in rich countries. Vandana Shiva has it exactly backwards. On balance it is the developed world that produces polluting goods and exports them to developing countries, and thus developed countries that bear more than their share of the environmental cost associated with international trade.

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