Ecological Indicators 61 (2016) 707–714

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Ecological Indicators

j ournal homepage: www.elsevier.com/locate/ecolind

Does income growth relocate ?

a,∗ b,1

Ahmet Atıl As¸ ıcı , Sevil Acar

a

Istanbul Technical University, Department of Management Engineering, Faculty of Management, Mac¸ ka, Istanbul˙ 34367, Turkey

b

Istanbul Kemerburgaz University, Department of Economics , Mahmutbey Dilmenler Cad. No: 26, Bagcılar,˘ Istanbul,˙ Turkey

a r t i c l e i n f o a b s t r a c t

Article history: The aim of this paper is to investigate whether countries tend to relocate their ecological footprint as

Received 18 September 2014

they grow richer. The analysis is carried out for a panel of 116 countries by employing the produc-

Received in revised form 10 June 2015

tion and import components of the ecological footprint data of the Global Footprint Network for the

Accepted 7 October 2015

period 2004–2008. With few exceptions, the existing Environmental Kuznets Curve (EKC) literature con-

Available online 6 November 2015

centrates only on the income-environmental degradation nexus in the home country and neglects the

negative consequences of home consumption spilled out. Controlling for the effects of openness to trade,

JEL classification:

biological capacity, density, industry share and energy per capita as well as stringency of

Q01

Q56 environmental and environmental regulation enforcement, we detect an EKC-type relation-

Q57 ship only between per capita income and footprint of domestic production. Within the income range,

import footprint is found to be monotonically increasing with income. Moreover, we find that domes-

Keywords:

tic environmental do not influence country decisions to import environmentally harmful

Ecological footprint

products from abroad; but they do affect domestic production characteristics. Hence, our findings indi-

Economic growth

cate the importance of environmental regulations and provide support for the “Pollution Haven” and

Environmental Kuznets Curve

“Race-to-the-Bottom” hypotheses.

Environmental regulation

© 2015 Elsevier Ltd. All rights reserved.

1. Introduction stock, which are not environmentally sustainable ways given the

available stocks and their limited regenerative capacity.

This paper intends to detect whether countries tend to export The impact of income growth on domestic environmental qual-

negative environmental consequences of their consumption ity and natural resources has been investigated extensively in the

as they grow richer, and uncover the factors that drive such literature. According to one of the most popular hypothesis, called

behaviour. With the ever-expansion of the world notably Environmental Kuznets Curve (EKC), there is an inverse-U-shaped

in the last three decades, the observation that our globe has relationship between environmental degradation and economic

already gone beyond its limits in terms of resource use is backed growth; that is, environmental degradation increases as income

by several environmental indicators, e.g. the ecological footprint increases up to an income threshold and starts to fall. In the major-

developed by Wackernagel and Rees (1996). According to the ity of the EKC studies, a one-dimensional environmental quality

data provided from the Global Footprint Network (GFN), current indicator (such as CO2 emissions, waste, etc.) has been employed

global consumption is 50% beyond the Earth’s biological capacity and the effects of income on the environment have been measured

(World Wildlife Fund for Nature, 2012). Moreover, among the in the country where production and consumption take place. Yet,

199 countries reported, only 60 countries have higher biological it is clear that the effects of economic activities on environmen-

capacity than their ecological footprint as of 2008. That means 139 tal quality are multi-dimensional rather than one-dimensional.

countries ran biological deficits that can only be covered by either Moreover, in today’s globalized world, locations of production and

importing biological capacity and/or depleting their biological consumption have been changing rapidly. This necessitates the

measurement of environmental degradation and natural resource

exploitation not only in the location where consumption takes

place but also in the production location given the fact that interna-

tional trade and capital flows make it possible to import rather than

∗

Corresponding author. Tel.: +90 212 293 1300/2050/203; produce domestically the goods which are ecologically destructive

fax: +90 212 224 8685.

(Peters et al., 2011; Weinzettel et al., 2013).

E-mail addresses: [email protected] (A.A. As¸ ıcı), [email protected]

Previous EKC literature brings us to the discussion of

(S. Acar).

1 whether the EKC relationship is quasi-automatic or policy-induced

Tel.: +90 212 604 01 00/4064; fax: +90 212 445 92 55.

http://dx.doi.org/10.1016/j.ecolind.2015.10.022

1470-160X/© 2015 Elsevier Ltd. All rights reserved.

708 A.A. As¸ ıcı, S. Acar / Ecological Indicators 61 (2016) 707–714

(Grossman and Krueger, 1995; Van Alstine and Neumayer, 2010). suggest that using ecological footprint as a dependent variable does

Heavy regulation at home may force companies to adopt cleaner not reveal an EKC-type relationship. Instead they find that environ-

at home and/or force dirty industries to migrate mental pressure is intensified as income per capita increases. These

abroad where regulations are laxer. Apart from these push factors, it findings are supported by both York et al. (2004) and Caviglia-Harris

is also observed that many developing countries are forced to lower et al., 2009, who emphasize that ecological footprint rises signif-

their environmental standards in the aim to gain international com- icantly with gross domestic product (GDP) per capita. Al-mulali

petitiveness and to attract foreign direct investments which are et al. (2015, p. 315) point out that the EKC “only occurs in a stage

perceived as essential for sustaining economic growth. Therefore, it of economic development in which technologies are available that

is plausible to think that increasing environmental quality in a rich improve energy efficiency, energy saving and ”

country could be gained at the expense of degrading environmental in their panel analysis of 93 countries. Chen et al. (2010), on the

quality abroad. In other words, from a global perspective, an EKC- other hand, examine the relationship between ecological footprint

type relationship at home does not necessarily imply that domestic and social development level rather than GDP per capita and fail to

consumption patterns have been put back on an environmentally evidence an inverted U-shaped relationship. Most of these studies

sustainable path. By importing rather than producing those goods do not make use of relevant control variables such as industry share

causing environmental degradation, a society can simply continue and environmental regulation in search for this relationship where

its “unsustainable” life-style (Schütz et al., 2004; Mayer et al., 2005; as our analysis contributes to the literature by acknowledging the

Berlik et al., 2002). importance of various factors other than income.

In this paper, we deal with these two less frequently addressed An increase in environmental quality after a certain level of

topics in the EKC literature. First, we focus on the multidimensional income (hence an EKC-type of turn) at home can easily be achieved

property of environmental degradation and natural resource use. without altering the unsustainable consumption patterns thanks to

Second, we distinguish between environmental pressures created the increasing international trade and capital flows. Andersson and

in the domestic economy versus abroad. We employ the multi- Lindroth (2001) lists four different ways of how trade may affect

dimensional ecological footprint data to measure environmental ecological footprint: (a) positive allocative effect, which reduces

quality and natural resource depletion with a panel fixed-effects ecological footprint as trade enables specialization of countries

analysis to detect the relationship between income and footprints on products which are produced with a higher yield, (b) nega-

that result from domestic production and imports for 116 countries tive income effect, which increases ecological footprint as trade

in the period 2004–2008 within the EKC framework. Ecological helps countries raise their income, and thereby, consumption,

footprint data enable to track the effect of income on domestic (c) negative rich-country-illusion effect, which highlights the false

and foreign biological capacities and hence provide a better under- impression in rich countries that their lifestyle is sustainable

standing. Moreover, as a multi-dimensional indicator, ecological which might be formed thanks to the possibility of importing bio-

footprint might help us to portray a more general picture. and sink-capacity from poorer countries, and (d) negative terms-

The outline of the paper is as follows. The following section of-trade distortion effect, which hints to the tendency of poorer

reviews the relevant literature. Section 3 describes the data and countries to exploit natural resources beyond sustainable scales

the model used. In Section 4, we report the regression results, and to protect themselves from falling terms-of-trade during boost

finally, Section 5 concludes. periods in world demand.

The possibility of importing bio- and sink-capacity with rising

income also creates another illusion on the side of poor countries

2. Background and relevant literature that economic growth is the necessary condition for a better envi-

ronment (Nordström and Vaughan, 1999). This, at the end, causes

The EKC hypothesis suggests that the effects of economic growth ecological footprint to climb up both in rich and poor countries.

or income on the environment are carried out through three chan- Therefore, it is indispensable to consider the effects of interna-

nels called the “scale”, “composition and “” channels. tional trade when dealing with income-environmental quality

The pioneering study by Grossman and Krueger (1991) asserts that relationship a la EKC. This is where this paper departs from others:

the negative scale effect (increasing consumption due to increas- analysing separately the effect of income (after controlling for sev-

ing affluence) tend to prevail in the initial stages of economic eral factors) on ecological footprints caused by domestic production

growth, but after a threshold level of development it should be and imports.

outweighed by the change in the composition of production (shift The positive effects unleashed by increasing income in richer

towards cleaner sectors) and by the change in technology employed countries (through channels of composition, technology and

(shift towards cleaner technologies). Following this study, numer- increasing sensitivity reflected in tightened regulations) could help

ous studies have been conducted in search of the existence of an to clean up the domestic environment; but this does not guaran-

EKC in different countries using various environmental quality indi- tee an overall reduction in environmental degradation globally, if

cators. Yet the empirical evidence is mixed; that is, it is not possible not an increase. There are several ways of importing environmen-

to assume a unique curve for all types of environmental degrada- tal burden of consumption in rich countries that can be understood

tion (see Dinda (2004) and Carson (2010) for a critical survey of the in the context of “unequal ecological exchange” among countries

recent EKC literature). Whether it exists or not, the question which (Andersson and Lindroth, 2001). One explanation is that less devel-

the majority of the EKC studies leave unanswered is whether envi- oped countries extract natural resources and export them to more

ronmental pressure is decoupled from income growth on the global developed ones so that the latter externalize pollution and envi-

scale or not. ronmental costs by means of importing resource-intensive goods

In contrary to the bulk of the literature that focuses on single or energy materials. Schütz et al. (2004) describes how improve-

pollution indicators to investigate the EKC hypothesis, there are ments in the motor- emission technology, possibly triggered by

a limited number of studies that address the consumption-based tightened regulation in the EU countries, relocate polluting produc-

approach to the EKC. Among them, Bagliani et al. (2008) utilize tion processes in the form of ecological rucksacks and how such

ecological footprint data for 141 countries in 2001 and conduct relocation increases pollution. They find that the pressure on the

Ordinary Least Squares and Weighted Least Squares analysis on environment due to “ecological rucksack” of the EU imports from

linear, quadratic and cubic functions, in standard and logarithmic developing countries stood at 5 to 1: that is, one tonne of imported

specifications, as well as a nonparametric regression. Their results raw materials resulted in 5 tonnes of erosion or unused extraction

A.A. As¸ ıcı, S. Acar / Ecological Indicators 61 (2016) 707–714 709

material in the countries of origin, whereas imports from newly pollution haven hypothesis in the Gulf Cooperation Council

industrializing countries in Europe carried a burden of only 1.6 countries owing to the fact that foreign direct investment to these

tonnes rucksack per tonne of raw materials in the year 2000. Simi- countries brings together advanced and eco-friendly technologies,

larly, Peters et al. (2011) show that Annex B countries of the Kyoto thereby reducing pollution levels. On the other hand, Kearsley and

Protocol (countries with emissions reduction obligations) have dis- Riddel (2010, p. 905) demonstrate “little evidence that pollution

located an increasing share of their CO2 emissions to countries havens play a significant role in shaping the EKC”. Yet some oth-

without obligations. ers find evidence of the pollution haven hypothesis (Mani and

It is plausible to think that available biocapacity in the home Wheeler, 1998; Lucas et al., 1992; Birdsall and Wheeler, 1993).

country will also affect the relationship between income and pro- The arguments put forward by those opposing the pollution haven

duction and import footprints. Given the level of income, one could hypothesis are based on (i) the finding that environmental compli-

expect to observe a higher concern for environmental degradation ance costs are often minimal as a proportion of a firm’s total cost

at home where pollution, congestion and resource scarcity are more (Tobey, 1990); (ii) the fact that investment climate in low regula-

threatening (Bagliani et al., 2008; Wang et al., 2013). Addition- tion countries is already unfavourable due to some characteristics

ally, the effects of industry share and energy use per capita could such as corruption, poor infrastructure and institutional quality;

be controlled for in determining the relocation of ecological foot- (iii) international reputational concerns of the firms (Cole, 2004).

print with respect to income. In line with the EKC hypothesis, one Levinson and Taylor (2008), in a study covering Canada, Mexico

would expect that a higher share of industry in the economy causes and the United States, find empirical support backing the observa-

increased environmental impact and a shift from heavy-industries tion that pollution control expenditures have significant impacts

to services reverts the impact in favour of the environment. Besides, on trade patterns. On the other hand, in a sectoral study, Poelhekke

there are also arguments such that industrialization could improve and Van der Ploeg (2012) argue that the Pollution Haven and

environmental quality if forces drive industries to become Race-to-the-Bottom hypotheses are valid in conventional “dirty”

more efficient and to reduce not only resource use but also waste industries, whereas data supports the gains-from-trade hypothesis

(Mol, 1995; Ozler and Obach, 2009). The impact of energy use, on in industries like telecommunication, automotive and transporta-

3

the other hand, has been investigated by several studies such as tion. Enforcement of environmental regulations can be argued to

Atici (2009), which finds that higher energy use in Central and be as important as the stringency of environmental regulations

Eastern Europe generates higher levels of emissions due to the use since having strict regulations on law books does not guarantee

of environmentally hazardous energy. Similar results in the long effective implementation.

run are evidenced for the case of Iran in a study by Saboori and Taking into account the considerations above, we augment the

Soleymani (2011). On the other hand, Caviglia-Harris et al. (2009) standard quadratic EKC model with several control variables such

test the EKC hypothesis performing a panel data analysis using the as trade openness, , industry share in GDP, and

ecological footprint of consumption and find that energy is largely energy use per capita. Moreover, in order to see the effect of envi-

responsible for the lack of an EKC relationship. They find a sta- ronmental regulations on production and import footprints (hence

tistically significant EKC only when the energy component of the location of footprint creation), we include stringency and enforce-

footprint indicator is removed from the data. ment of environmental regulation variables to the baseline model.

The effect of environmental regulation on economic activity has The next section summarizes the data and briefly describes the

been a widely debated policy issue in previous literature. Heyes methodology employed.

(2000) argues that increase in the stringency of regulations raises

incentives for non-compliance, which then entails the need to

3. Materials and methods

enforce them. Cheng and Lai (2012), on the other hand, argues that

a stricter enforcement policy adds to the financial burden of pol-

3.1. Data

luting firms, which then leads these firms to exert higher political

pressure (lobbying) to relax the environmental standards, conse-

In this study, we analyze the location of footprint creation

quently creating more environmental degradation. Some studies

(home or abroad) using a global sample of 116 high, middle and

advocate that international trade and foreign direct investment 4

low-income countries covering the period 2004–2008. Ecological

favour countries with clearly defined environmental regulations.

footprint and biocapacity data are taken from the Global Footprint

For instance, analyzing a data set of 29,303 observations from 94

Network’s 2012 Dataset (GFN, 2012), which contains data from

European Fortune Global 500 companies that operate across 77

1961 to 2008. Yet, stringency and enforcement of environmen-

countries, Rivera and Oh (2013, p. 243) find that multinational

tal regulation data, which is taken from WEF’s Executive Opinion

firms are eager to choose to penetrate into countries with clearer

Surveys (WEF, 2008), is only available by 2004.

and stable regulations than their home countries during the period

“Ecological Footprint” of consumption is measured as the sum

2001–2007. There is a vast literature on the link between reg-

of ecological footprint of production (domestic) and imports minus

ulatory characteristics and location of production investigating

that of exports. Footprint calculation method was developed by

the so-called “Pollution Haven”, “Race-to-the-Bottom” (Daly, 1993;

Wackernagel and Rees (1996) and it shows the amount of the pro-

Frankel and Rose, 2005), and “Gains-from-Trade” (Eskeland and

ductive geographical area required by human beings, adjusted for

Harrison, 2003) hypotheses. While it is intuitively plausible to think

, in order to meet the natural resource needs of various

that environmental regulations change trade patterns and produc-

economic activities, which serve consumption at the end. The unit

tion locations, empirical evidence is mixed. Some studies find no

2 of measurement is global hectares (gha), which refer to hectares

link between stringency of environmental regulation and trade in

normalized with world average productivity (Galli et al., 2007).

polluting industries (see Tobey, 1990; Jaffe et al., 1995; Janicke et al.,

1997). Al-mulali and Tang (2013) find no evidence in favour of the

3

Enforcement of environmental regulation data is derived from the question

of “How would you assess the enforcement of environmental regulations in your

2

Stringency of environmental regulation data is derived from the question of country?” included in the World Economic Forum’s Executive Opinion Survey. See

“How would you assess the stringency of your country’s environmental regula- Table A1 for more detail.

4

tions?” included in the World Economic Forum’s Executive Opinion Survey. See The income classification is based on the information taken from http://data.

Table A1 for more detail. worldbank.org/about/countryclassifications/a-short-history.

710 A.A. As¸ ıcı, S. Acar / Ecological Indicators 61 (2016) 707–714

Table 1

Descriptive statistics.

Variable Mean Std. dev. Min Max No. of countries Obs

Import footprint per capita 2.14 2.97 0.03 20.03 116 533

Production footprint per capita 3.65 5.84 0.47 67.39 116 533

GDP per capita 9054 11,946 137 56,285 116 533

Openness to trade 95 54 24 460 116 533

Biological capacity 3.49 6.57 0.02 90.54 116 533

Population density 0.188 0.64 0.002 6.913 116 533

Industry share 0.32 0.11 0.13 0.79 116 533

Energy use per capita 2.46 2.65 0.01 16.87 116 533

Stringency of environmental regulation 4.04 1.13 2.06 6.73 116 533

Enforcement of environmental regulations 3.83 1.03 1.83 6.34 116 533

Note: see Table A1 for a detailed explanation and sources of all the variables used in the analysis.

Each component can also be broken down across different land

4

types such as; cropland, grazing land, fishing grounds, forestland, car-

bon footprint, and built-up land. These are defined in Galli et al.

3

(2012, p. 100) as follows: (1) cropland for the provision of plant- gha pc , c)

2

based food and fibre products; (2) grazing land and cropland for the

provision of animal-based food and other animal products; (3) fishing

1

grounds (both marine and inland) for the provision of fish-based food

products; (4) forest areas for the provision of timber and other forest

0

products; (5) carbon uptake land for the absorption of anthropogenic

carbon dioxide emissions; and (6) built-up area representing produc-

-1

tivity lost due to the occupation of physical space for shelter and other

infrastructure. -2

Consumption footprint shows the renewable resources required

-3

to support people’s consumption independently from geographi-

Logof Consumption Footprint(ef

cal location. If per capita consumption footprint exceeds per capita

-4

biocapacity (that is, the ’s capacity to meet the consump- 4 6 8 10 12

tion demand) on the global level, this means the existing patterns Log of GDP pc

of consumption in the world cannot be sustained for long (GFN,

2010).5

Fig. 1. Consumption footprint vs. GDP per capita, 2004–2008. Notes: see Table A1 for

For our purposes in this paper, we concentrate on production, data definitions. The line represents Lowess function estimated with a bandwidth

of 0.8.

more specifically the effect of income on the location of produc-

tion which fuels consumption. As a typical consumption basket of

any individual comprises of both domestically produced and for- Hence, Fig. 2 displays the distribution of import and production

eign goods, consumption in a country requires both domestic and footprints of countries across income groups. Apparently, import

foreign resources, which are translated into the ecological footprint footprint of countries rises with their income and gets closer to their

of production (efp) and that of import (efm). Note that footprint of production footprint. Production footprint of low income countries

domestic production includes also the footprint caused by the pro- is well beyond their import footprint.

duction of goods that are exported, the so-called export footprint Figs. 3 and 4 shed light on the location of production of the

by GFN. Since our analysis concentrates on the location of produc- ecological footprint. As income increases, import footprints of

tion, we are not interested whether domestically produced goods countries climb up faster than their domestic production footprints.

are consumed at home or abroad. Our preliminary analysis based on the scatter diagrams hints that

In this study we use two dependent variables, which are;

(i) Ecological footprint of production (efp).

15

(ii) Ecological footprint of imports (efm).

All the other independent variables are extracted from the

World Development Indicators (WDI) database of the World Bank

10

(World Bank, 2013). Summary statistics of the variables are dis-

played in Table 1 whereas their definitions are presented in

gha

Table A1 in the appendix.

Fig. 1 below indicates that ecological footprint of consumption 5

monotonically rises with income per capita. But the question of who

bears the ecological consequences (home or abroad) is left unan-

swered. To answer this question one should differentiate between

production and import footprints. 0

High Income Middle Income Low Income

Import Footprint pc Production Footprint pc

5

As of 2008, an average world citizen has a consumption footprint of 2.7 gha, excludes outside values

whereas available per capita biological capacity of the world is only 1.78 gha. It is

straightforward to calculate the number of “earths” that can support this level of

consumption, which is 1.52 (2.7/1.78) earths. Fig. 2. Import and production footprints, 2004–2008.

A.A. As¸ ıcı, S. Acar / Ecological Indicators 61 (2016) 707–714 711

Eq. (1) is estimated via the fixed effects panel data model using

4

the following dependent variables: production footprint (efp) and

import footprint (efm).

The possible outcomes can be listed as follows: 2 , pc gha,

m)

1. If ˇ1 > 0 and ˇ2 > 0, there is a positive quadratic relationship;

2. If ˇ1 > 0 and ˇ2 is either insignificant or equal to zero, there is a

0

monotonically increasing relationship;

3. If ˇ1 < 0 and ˇ2 < 0, there is a negative quadratic relationship;

4. If ˇ1 < 0 and ˇ2 is either insignificant or equal to zero, there is a

-2

monotonically decreasing relationship;

5. If ˇ1 > 0 and ˇ2 < 0, there is an EKC-type (inverted U-type) Log of Import Footprint (ef Footprint Import of Log relationship;7

-4

6. If ˇ2 < 0 and ˇ2 > 0, there is a U-type relationship between the

4 6 8 10 12

Log of GDP pc relevant footprint indicator and income per capita.

In a panel data setting, one of the important issues that need to

be addressed is the problem of endogeneity between the regres-

sors and country specific effects. Due to the possible correlation

Fig. 3. Import and production footprints, 2004–2008. Notes: see Table A1 for data

definitions. The line represents Lowess function estimated with a bandwidth of 0.8. between the explanatory variables and the individual effects in

our model, we employ the fixed effects model specification, which

allows for endogeneity of all the regressors with these country fixed

4 effects (Baltagi, 2005, p. 19). 3

4. Results

2

Table 2 displays the regression results of the baseline and the

1 augmented (environmental regulation added) models. To begin

with, coefficients of per capita income and its square are all sig-

0

nificant and have the signs that confirm the EKC hypothesis. As

income per capita rises, footprint of import (efm) as well as that

-1

of production (efp) first tend to increase. After a certain thresh- oduction Footprint (efp), pc gha pc (efp), Footprint oduction

Pr

-2 old point for income, efp is expected to decrease. That means the

negative impact of economic growth on the environment at initial -3

Log of of Log

stages of economic growth turns to positive as countries become

richer. The turning points for income vary between around 32,000

-4

and 34,000 for efp and around 62,000 and 63,000 USD for efm (in

4 6 8 10 12

Log of GDP pc constant 2000 prices). Yet, the turning point for import footprint

(efm) is far above the upper limit of the income range of the sam-

ple. Owing to this result, it can be concluded that countries exert

Fig. 4. Production footprint vs. GDP per capita, 2004–2008. Notes: see Table A1 for

an increasing environmental pressure abroad by importing as they

data definitions. The line represents Lowess function estimated with a bandwidth

of 0.8. get richer, contradicting with the EKC hypothesis.

Our results also indicate that trade openness, which is measured

decoupling of environmental pressure from income does not occur as the share of total exports and imports in GDP, leads to higher

but prospering countries tend to export the negative environmen- import footprint confirming the findings of Andersson and Lindroth

tal consequences of their consumption abroad, possibly to poorer (2001). As expected, having higher biocapacity per capita tends to

countries. In the next section, we formally test these preliminary increase footprint of production, whereas it decreases import foot-

observations. print since countries with abundant biocapacity stocks can deplete

their own resources and consume their own biological stocks.

3.2. Econometric model Denser population causes lower domestic production footprint.

It might be argued that, in densely populated regions, energy is

Consider the following econometric model, which is the basis of expected to be consumed more efficiently (thanks to e.g. central

our analysis: heating and dense and highly connected transportation networks

2 which reduce the need for private transportation). Another possible

y = ˇ + ˇ x + ˇ x + ˇ Z + ε

it 0 1 it 2 it 3 it it (1)

explanation is that, concentration of services can be expected to

where yit is the ecological footprint indicator of country i at time be higher than manufacturing activity in densely populated areas.

t; xit is GDP per capita (in 1000 constant US$), and Zit is the vector Both effects may help to reduce production footprint. Industry value

of all other covariates (namely, openness, biocapacity, population added share in GDP, on the other hand, appears to have no effect on

density, industry value added share in GDP, energy use per capita, efm or efp.

stringency of environmental regulation, and enforcement of envi- Higher energy use per capita induces lower production footprint

6

ronmental regulations) of country i in year t. εit is the error term, and higher import footprint. The latter result meets our expecta-

capturing all other omitted factors with E(εit) = 0. tions in the sense that countries which are not sufficiently endowed

6 7

See Table 1 for the summary statistics and Table A1 for the description and units The turning point for income per capita after which environmental quality

of both the dependent and independent variables employed in the analysis. improves is equal to −ˇ1/2ˇ2.

712 A.A. As¸ ıcı, S. Acar / Ecological Indicators 61 (2016) 707–714

Table 2

Panel fixed-effects regression results.

(1) (2) (3) (4)

Production footprint pc (efp) Production footprint pc (efp) Import footprint pc (efm) Import footprint pc (efm)

*** *** *** ***

GDP pc 0.653 0.637 0.369 0.369

(6.08) (5.94) (6.48) (6.38)

*** *** *** ***

GDP pc-square −0.0102 −0.00926 −0.00291 −0.00298

(−6.15) (−5.45) (−3.31) (−3.26)

** **

Openness −0.356 −0.171 0.447 0.410

(−0.93) (−0.45) (2.20) (2.00) *** *** * *

Biocapacity 1.326 1.323 −0.194 −0.194

(6.89) (6.97) (−1.90) (−1.90)

*** ***

Population density −3.20 −3.67 −0.369 −0.303

(−3.05) (−3.52) (−0.66) (−0.54)

Industry 1.279 1.030 −0.211 −0.189

(0.70) (0.57) (−0.22) (−0.20)

*** *** *** ***

Energy use pc −1.129 −1.192 0.162 0.172

(−11.46) (−12.09) (3.10) (3.25)

**

Stringency of env. regulation 0.384 −0.0353

(2.35) (−0.40)

***

− Enforcement of env. regulation 0.639 0.101 −

( 3.67) (1.08)

N 533 533 533 533

No. of groups 116 116 116 116

F-statistics 190 193 89 83

R-sq (within) 0.37 0.39 0.26 0.26

R-sq (btw) 0.03 0.02 0.46 0.46

R-sq (overall) 0.08 0.07 0.55 0.55

Turning points (constant $) 32,025 34,411 63,488 61,846

t statistics in parentheses. Constant terms not reported.

*

p < 0.10

**

p < 0.05.

***

p < 0.01.

with energy resources need to import most of their energy, which reduce the effect of income generation on environment. The effect

increases their import footprint. of GDP on environmental quality after a certain level of income

Finally, we examine the implications of stringency of environ- has been widely investigated in the EKC literature. Yet, what the

mental regulation and enforcement of environmental regulation on existing studies fail to address is the question of who bears the eco-

the footprint creation location. The results indicate that footprint of logical consequences of affluence. Increased environmental quality

domestic production increases as regulation becomes more strin- at home does not necessarily indicate a more sustainable consump-

gent. On the other hand, as enforcement of regulations becomes tion pattern at home, since, thanks to widening international trade,

more rigorous, footprint of domestic production decreases. Our countries can choose to import rather than produce domestically

findings are parallel to Heyes (2000), which argues that incentives environmentally harmful products. In this study, we aim to fill this

for non-compliance increase as regulations become more strin- gap in the literature.

gent, which, in turn, creates the necessity of stronger enforcement. Controlling for country-fixed effects and several indicators such

Depending on the magnitudes of estimated coefficients, one can as openness, biocapacity, etc., our results validate the EKC hypoth-

see that negative enforcement effect dominates positive stringency esis only for the relationship between income per capita and

effect. Hence we can conclude that environmental regulations do ecological footprint of production. In the case of footprint of

decrease domestic production footprint. However, stringency or imports, the estimated income turning points are out of the income

enforcement of regulations has no significant effect on import foot- range of the sample. This supports our hypothesis that as countries

print. That is to say, domestic regulations do not influence country grow richer they tend to export the ecological cost of their con-

decisions to import the environmentally harmful products from sumption to poorer .

abroad; but they do affect domestic production characteristics. We also investigate the implications of stringency and

It is also noteworthy that income turning points change signifi- enforcement of environmental regulation on the location of the

cantly once environmental regulation is accounted for. In the case environmental pressure. The results reveal that more stringent reg-

of import footprint threshold income drops from 63,488 USD down ulation leads to an increase in the footprint of domestic production.

to around 61,846 USD, whereas in the case of production foot- Hence, stringer regulation seems to increase non-compliance and

print, turning point income per capita increases from 32,025 USD aggravated the situation. However, if non-compliance behaviour is

to 34,411 USD when we include the stringency of environmental to be avoided by tightened enforcement, domestic production foot-

regulation and enforcement of environmental regulation variables. print decreases. On the other hand, this is not the case for import

footprint. We find that, domestic environmental regulations do not

bear any significant effect on footprint of imports.

5. Conclusion and discussion

To sum up, given the diverging economic, environmental and

political characteristics of countries, economic growth in itself is

Economic growth has been generally put forward as the key

not sufficient to mitigate negative environmental externalities. The

panacea to environmental problems in the contemporary world

significantly changed income turning points show the importance

with reference to the improving environmental quality in some

of environmental regulation and its enforcement along with eco-

countries thanks to higher access to cleaner technologies, more

nomic growth. Our findings support the view of Van Alstine and

efficient production systems and increased awareness of people as

Neumayer (2010) that “grow now, clean up later” message of stan-

they get richer. Rising awareness with income is also expected to be

dard EKC studies might be misleading for developing and less

translated into tightened environmental regulation which helps to

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