Globalization and Climate Change: New Empirical Panel Data Evidence
Maoliang Bu1, 2*
School of Economics, Nanjing University
Hopkins-Nanjing Center
Chinte Lin3
Department of Economics, Soochow University
Abstract
Whether globalization is good or bad for the environment has been studied intensively in past
years. However, few studies have explicitly provided a general picture of the case around the
world, or taken into account of the rich dimensions of globalization except for economic
sense. By applying the new KOF globalization index with a panel data sample of 201
countries from 1970 to 2009, our results suggest that carbon emissions arise with higher level
of economic and political globalization on average, the effect varies by OECD and
1,2
Corresponding author
School of Economics, Nanjing University, Hankou Road 22, 210093, Nanjing, China.
Tel:
+86-2583621395
Fax:
+86-2583592077
E-mail address: bumaoliang@hotmail.com
3
Department of Economics, Soochow University, 56 Kueiyang Street, Sec. 1, Taipei 100,
Taiwan.
E-mail address: twdavidlin810804@gmail.com
1
Non-OECD country groups. Further evidence reveals the discordant relationship after the
UNFCCC take effect. These differences provide evidence consistent with a pollution haven
effect on terms of climate change.
Keywords: Globalization, Pollution haven, Carbon emission, KOF index, Panel data
JEL classification: F18, Q54, C33
1. Introduction
In recent years, the field of globalization and the environment has gained enormous attention
around the heated debate over so called “pollution haven hypothesis”, which argues that the
pollution intensive industries would move from developed countries to developing countries
with relatively lax environmental regulations (Bu et al., 2011; Cole et al., 2011; Copeland and
Taylor, 2004; Eskeland and Harrison, 2003). So far globalization is a very complicated
phenomenon to be examined in any single facet including economic, cultural and political
views which means a multi-angle of spatial visions is necessary to be considered (Held 1999;
McGrew & Held 2003). Previous studies generally suffer two main constraints. Firstly, most
studies hardly take into account of as many countries as possible, with samples consisting of
one or several countries in most cases, and fail to provide a general world picture of the issue.
Secondly, regarding on the dimension of globalization, nearly all the studies take the form of
either trade or foreign direct investment, while beyond economic globalization, other
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dimensions of globalization has been largely ignored (Frankel, 2003). For example, so far it
has been unclear to understand the extent to which the environment is influenced by the wave
of social and political globalization. This paper aims to rectify the literature deficiency with
empirical panel data evidence using the new KOF globalization index and integrate with the
theoretical principles provided by Grossman and Kruger (1991).
2. Theoretical analysis
The pioneering work by Grossman and Kruger (1991) is central to this paper. They not only
subsequently led to a burgeoning literature on Environmental Kuznets Curve (EKC), but also
developed a convention of decomposing the influence of trade on the environment into three
effects, namely technology, scale and composition effects. They are assumed to have positive,
negative and unknown effect on the environment respectively. With this framework, besides
economic globalization, we integrate other dimension of globalization, including social
globalization and political globalization towards the analysis of influence on the environment.
The theoretical predictions of the effects of globalization on the environment are summarized
by table 1. Firstly, on economic globalization, it is straightforward and very similar to
Grossman and Kruger (1991). Secondly, on social globalization, more internationally social
integration could generate more environmental technology spillovers. However it may not be
related the scale or composition of certain country. Therefore, social globalization could have
a positive effect on the environment in overall sense. Lastly, political globalization has been
disputed with different globalization theories which imply that the influence from all effects
is unknown.
[Please insert Table 1 about here]
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3. Model and result
Following Grossman and Kruger (1991), we begin by estimating the following reduced- form
equation for the relationship between globalization and the environment:
Epcit   i  t  1Yit   2Yit2  3Gindexit   it
(1)
Where Epc is per capita carbon emissions denoting the environmental variable,  is countryspecific intercepts,  is time- specific intercepts, Y represents per capital GDP at constant
year 2000 price US $. The data source of Epc and Y is World Development Indicators (WDI)
2013. Gindex refers to the level of globalization, using the KOF index, which is based on 23
variables that relate to different dimensions of globalization covering 201 countries from the
year 1970 to 2009. These 23 variables are consolidated on six groups and these groups are
further combined into three subindex and one overall index of globalization in fair percentage
with an objective statistical method (Dreher and Gaston, 2008; Dreher et al., 2008). Fig 1
shows the globalization map based on the KOF index of 2009. The three subindex of
globalization enable us with following further equation:
Epcit   i  t  1Yit   2Yit2  3 EGindexit   4 SGindexit  5 PGindexit   it
(2)
Where EGindex, SGindex and PGindex refer to the level of economic globalization, social
globalization and political globalization respectively.
According to the KOF index, they are defined as:

economic globalization, characterized as long distance flows of goods, capital and
services as well as information and perceptions that accompany market exchanges;

political globalization, characterized by a diffusion of government policies;

social globalization, expressed as the spread of ideas, information, images and people.
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[Please insert Fig 1 and Table 2 about here]
Table 2 reports the result from the application of the fixed effect approach. The estimation of
Eq. (1) and Eq. (2) with dependent variable per capita carbon emission in logs is reported as
follow: Initially in column (1), overall globalization index have a positive sign with
coefficient 0.0124 at the 1% level which express higher globalization is thus associated with
higher environmental pollution in terms of carbon emissions. We extent our models to
precisely scope the influence from different dimensions of globalization in column (2), we
find the higher economic and political globalization will lead to more polluted environment.
Economic globalization is the spotlight since the importance of greenhouse gas issues and
global warming issue has been highly respected. While (Held 1999) described globalization
as a historical process which transforms the spatial organization of social relations and
transactions, generating transcontinental or inter regional networks of interaction and the
exercise of power; (M. Albrow, 1996) also interpret globalization is a historical process and
emphasize on the spillover of various of actions, values, technology and products which
implies, beyond economic globalization, the international political and organizations’ struggle
and cross culture broadcasting is imperceptible to transform our environment in certain level
through political globalization and social globalization.
To further examine the rich dimensions of globalization whether the pollution haven exists or
not, we divide our countries group into OECD (without the countries joined after 2010) and
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Non-OECD. Statistical estimation in column (3) and (4) show the coefficient -0.00684 in
OECD and 0.00423 in Non-OECD respectively at 1% significantly level in row (1) which
shows a kind of appearance on pollution shift between OECD and Non-OECD countries. In
row (2) and row (3) we find our controversial findings on the social globalization and
political globalization, combining the composition of social and political globalization index
and the Table1 we mention above, we ascribe the divergence of our results are from the
different level of country groups’ participation in world business and the power of culture and
technology.
United Nations Framework Convention on Climate Change is the greatest convention on
controlling greenhouse gas emission including 196 participating countries members so far
which signed on May 1992 and took effect on April 1994. Considering the material time
transition on both OECD and Non-OECD countries before and after UNFCCC, we divide our
time period into before and after 1994 which display the results in column (5) to (8).
On the row (1) in column (5) and (6), the estimation on the economic globalization initially
shows the insignificant in column (5) and shows the significant negatively coefficient
-0.00263 in column (6); which illustrate after UNFCCC OECD countries are reduce more
Carbon emission. It is important to explore the contrast between column (5) and (6) and
column (7) and (8). The results reveal the evidence in column (7) and (8) with both
significantly positive coefficients consistent with a pollution haven effect on terms of climate
change.
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The political globalization is statistically significant before UNFCCC at 1 % level in OECD
with coefficient 0.016 and Non-OECD with the coefficient 0.00689 at 1% level In column (5)
and (7) ; In column (6) and (8), after the UNFCCC, OECD countries shows insignificant in
political globalization, whereas Non-OECD countries worsen the environment. Such
alteration between two groups in different period of time should be thought highly of the
embassies in other countries, membership in international organizations, participation in UN
Security Council missions and international treaties. The results of our finding are briefly
demonstrate one phenomenon that countries should participate in more international treaties
and organizations for environmental protection. The results in the developed countries also
hint on the consequence when the developed countries more enthusiastic about the world
issues, the developing countries may highly polluted to the environment for the developed
countries in turns of highly positive sign in column(8) relative to column (6).
Multi-national corporations and newly burgeoning cross country capitalist classes are
growing in strength. Row (2) in column (5) to (8) our significant estimation results interpret
one phenomenon that international corporations and social globalization not only threaten the
human rights and environment which originally had been controlled by nations but also
weakened the quality of people’s life. (Naisbitt 1994). In both OECD and Non-OECD
countries we can obviously clarify this tough issue by comparing the previous results in
column (4) and (5), globalization will cause the different influences on the different period of
time which means this is no continuous advantages or disadvantages on single group whereas
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a chance to transform.
4. Conclusion
Integrating the conventional framework of Grossman and Kruger (1991), this paper
reinvestigates the relationship between globalization and the environment by using the new
KOF globalization index and carbon emission data. Our most important results are that higher
economic globalization will decrease carbon emissions among OECD countries; in contrast,
increase carbon emissions among Non-OECD countries. Also, the influence of social and
political globalization toward carbon emissions both differs by country types of OECD and
Non-OECD. We believe that our results could shed some light on the field of globalization
and the environment by adopting a broader comprehensive index of globalization and
comparing between different country types.
Acknowledgements
The first author gratefully acknowledges the support of special project fund from the
Academic Consortium 21 (AC21).
References
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[4]. Copeland, B. R. and S. Taylor (2004)."Trade, growth, and the environment." Journal of
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[6]. Dreher, Axel, Noel Gaston and Pim Martens (2008), Measuring Globalisation – Gauging
its Consequences (New York: Springer).
[7]. Eskeland, Gunnar S., and Ann E. Harrison. "Moving to greener pastures? Multinationals
and the pollution haven hypothesis." Journal of Development Economics 70.1 (2003):
1-23.
[8]. Frankel, Jeffrey A. The environment and globalization. No. w10090. National Bureau of
Economic Research, 2003.
[9]. Grossman, Gene M., and Alan B. Krueger. Environmental impacts of a North American
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[10]. Held,
David,
and
Anthony
McGrew.
"Political
globalization:
Trends
and
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9
smallest players." JOURNAL OF LEISURE RESEARCH 26 (1994): 406-406.
Table 1: Theoretically Predicted Effects of Globalization on the Environment
Economic
Social globalization
globalization
Political
globalization
Technology effect
+
+
?
Scale effect
-
0
?
+/-
0
?
?
+
?
Composition effect
Overall
Note: +/0/-/? = positive / zero/ negative/ unknown effect, respectively.
Table 2: The empirical results with fixed effect
Gindex
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
fe
fe
OECD,fe
Non-OECD,fe
OECD,fe
OECD,fe
Before
AFTER
Before
AFTER
UNFCCC
UNFCCC
UNFCCC
UNFCCC
Non-OECD,fe Non-OECD,fe
0.0124***
(0.000747)
Egindex
Sgindex
0.00227**
-0.00684***
0.00423***
-0.00207
-0.00263***
0.00820***
0.00308**
(0.000920)
(0.000901)
(0.00114)
(0.00147)
(0.000978)
(0.00208)
(0.00138)
0.00164
-0.00241***
0.00645***
-0.00876*** 0.00521***
-0.00683*
0.00441**
10
(0.00115)
(0.000877)
(0.00157)
(0.00114)
(0.00105)
(0.00348)
(0.00180)
0.00746***
0.0153***
0.00437***
0.0116***
-0.00107
0.00689***
0.00251***
(0.000602)
(0.000740)
(0.000733)
(0.00110)
(0.00105)
(0.00111)
(0.000950)
0.0540***
0.0398***
0.0577***
0.0642***
0.121***
0.000626
0.101***
0.132***
(0.00489)
(0.00613)
(0.00454)
(0.00908)
(0.0100)
(0.00496)
(0.0146)
(0.0200)
3.49e-06
-0.00102***
-0.00305***
Pgindex
Y
Y2
-0.000867*** -0.000733*** -0.00102*** -0.000695*** -0.00244***
(7.65e-05)
(0.000101)
(7.13e-05)
(0.000147)
(0.000195)
(7.22e-05)
(0.000189)
(0.000468)
-0.371***
-0.357***
0.875***
-0.859***
0.685***
2.046***
-0.924***
-0.632***
(0.0308)
(0.0318)
(0.0464)
(0.0362)
(0.0894)
(0.0940)
(0.106)
(0.0605)
R2(within)
0.120
0.124
0.439
0.133
0.361
0.065
0.081
0.105
Observations
5,804
4,857
1,096
3,761
616
480
1,963
1,798
Constant
Note: t statistics in parentheses* p < 0.05, ** p < 0.01, *** p < 0.001
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Fig 1: KOF index of Globalization 2009.
Source: http://globalization.kof.ethz.ch/
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