International Competition and Environmental Expenditures: Empirical Evidence from Indonesian Manufacturing Plants

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTThis paper analyzes environmental expenditures in Indonesia -a significant newly industrializing economy -reported at the plant level comprising all 23 thousand manufacturing establishments with more than 20 employees. Since compliance is barely enforced, pollution abatement expenditures are effectively voluntary in nature. This allows us to test whether foreign owned firms expend more due to a technology that adheres to stricter Western standards or whether the predominant effect is that both foreign and domestic exporting companies are more environmentally conscious due to better technology transfer or green consumerism in the Western countries. If so, this would contradict conventional wisdom that environmental expenditures reduce competitiveness and that increased levels of foreign direct investment or export-orientation in manufacturing will necessarily pre-empt firms from behaving in a "greener" fashion.JEL Classification: F1, Q1

Corporate Expenditure on Environmental Protection

“…While Kaiser and Schulze (2003) find a positive effect of exporting status on a firm's propensity to have environmental expenditure and a negative effect on the amount they spend, our results suggest that exporters are more likely to commit resources to environmental expenditure and also to capital investment for pollution control. As Irish-owned exporters are more productive than Irish-owned non-exporters (Ruane and Sutherland, 2005) this might indicate that they invest in new technology more frequently or that their products are subject to higher environmental standards than those of non-exporters.…”

“…Controlling for other firm characteristics, they find that the nationality of ownership has different effects on different types of pollution abatement expenditure. Kaiser and Schulze (2003) also focus on the importance of international competition either in the form of foreign ownership or export status on environmental expenditure in Indonesian manufacturing plants. While these factors matter, other firm characteristics are at least as important.…”

Is there an environmental benefit to being an exporter? Evidence from firm-level data

“…This may suggest that, consistent with Cole et al (2008), Cole et al (2006), and Kaiser and Schulze (2003) a foreign parent may transfer technology to its subsidiary. Alternatively, this may result from the fact that nearly all foreign owned firms in our sample export for the entire period, eliminating the necessary variation to obtain significant results in that sample.…”

“…Kaiser and Schulze (2003) find that among Indonesian manufacturing plants those engaging in export activities are significantly more likely to report spending on environmental protection, with magnitudes at least on a par with spending by the non-exporting plants. Girma et al (2008) analyze environmental performance of firms in a heterogeneous setting.…”

“…Studies using aggregate data, such as Antweiler et al (2001), Dean and Lovely (2010), Javorcik and Wei (2004) and Ederington et al (2004), generally fail to find support for increased FDI leading to increased pollution. In addition, recent firm-level studies including Cole et al (2008), Cole et al (2006), and Kaiser and Schulze (2003) have uncovered a positive effect of foreign ownership on the environmental performance of firms in the host country. This should not be taken to imply that there is no evidence for a shift in activities as a result of differences in environmental standards, since Levinson and Taylor (2008) and Ederington et al (2005) find evidence of increased net imports in response to increased abatement costs.…”