Racing to the Bottom in the Post-Communist World: Domestic Politics,
International Trade, and Environmental Governance
Liliana Botcheva-Andonova
Department of Government
Colby College
Waterville, ME 04901
landonov@colby.edu
Edward D. Mansfield
Department of Political Science
University of Pennsylvania
Philadelphia, PA 19104
emansfie@sas.upenn.edu
Helen V. Milner
Department of Politics
Princeton University
Princeton NJ 08540
hmilner@princeton.edu
Abstract
In this paper, we analyze whether trade liberalization and increasing commercial
openness has affected environmental governance in the post-Communist countries of
Central and Eastern Europe and the Commonwealth of Independent States. During the
Cold War, these countries had closed economies and autarkic trade policies combined
with little environmental regulation and poor environmental quality. The fall of the
Berlin Wall and the breakup of the Soviet Union began a process of marked change in the
region. Many post-Communist countries have engaged in extensive trade liberalization.
Others, however, have been slower to open their markets; and some have maintained
highly protectionist trade policies. Have countries that opened up to global markets
improved their environmental policies or has increasing exposure to the international
trading system led to a “race to the bottom”? Controlling for a wide variety of economic
and political factors, our results indicate that heightened trade openness has weakened
environmental governance in the post-Communist world, suggesting that an
environmental race to the bottom has been occurring among the transition economies.
1
Introduction
In recent years, social scientists, policy makers, and other observers have
expressed considerable interest in the relationship between globalization and the
environment. Nowhere is the need for a fuller understanding of this relationship more
pressing than in research on the post-Communist economies of Central and Eastern
Europe (CEE) and the Commonwealth of Independent States (CIS).1 Until the late
1980s, all of these countries had closed economies coupled with weak environmental
regulations and extensive pollution. Since the end of the Cold War, some postCommunist countries have engaged in rapid and extensive trade liberalization and have
made various related efforts to increase their integration into the world market,
contributing to rising globalization (EBRD 1999, 204; Murrell 1996; Rodrik 1992). For
other states, however, progress in reforming their trade regimes has been slow or has not
occurred at all. In this paper, we analyze whether the trade regimes of post-Communist
states have influenced their environmental policies.
One of the chief fears expressed in the burgeoning literature on globalization is
that this process will precipitate a “the race to the bottom” in environmental governance.
The worry is that heightened competition in a globalized economy may lead firms to
locate investments in countries that minimize regulations and other costs of doing
business. Equally, domestic firms that cannot relocate may press their governments to
reduce such costs in order to avoid being placed at a competitive disadvantage in global
markets. These pressures could prompt governments to weaken or abolish environmental
regulations. A number of studies have found evidence of this phenomenon, although the
1
The CEE countries are Bulgaria, the Czech Republic, Hungary, Estonia, Latvia, Lithuania, Poland,
Romania, Slovakia, and Slovenia. The CIS includes the Russian Federation, Armenia, Azerbaijan, Belarus,
Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
2
matter remains highly controversial (Copeland and Taylor 2004; Hettige, Lucas, and
Wheeler 1992; Lofdahl 2002; Low 1992). Alternatively, globalization may place
pressure on firms and countries to improve environmental standards if, for example, they
are required to make such improvements before gaining access to valuable foreign
markets (Garcia-Johnson 2000; Jha, Markandya, and Vossenaar 1999; Mol 2001; Vogel
1995). Many observers have suspected that this would be the case for certain transition
economies, since the European Union (EU) made accession by the CEE countries
contingent on the adoption of relatively stringent environmental regulations (Andonova
2003a, 2003b; Holzinger and Knoepfel 2000; OECD 1999b).
However, little systematic research has been conducted on the links between trade
and environmental policy in the post-Communist world. This paper aims to fill that
important gap. We argue that an environmental race to bottom has occurred in the
region. We begin by discussing the history of environmental policy in these countries
since 1991. We then present our argument about why open trade might produce a race to
the bottom in environmental policy. We discuss evidence from several cases to support
the logic behind our argument. Then we perform a systematic quantitative analysis of the
relationship between trade and environmental policy for the CEE and CIS countries in the
1990s. Our statistical results and anecdotal evidence from the historical record support
our argument. During the 1990s, trade liberalization produced a weakening of
environmental policy by reducing governments’ ability to collect environmental taxes
and support environmental investments. Consequently, globalization seems to be
undermining the environmental regimes of the post-Communist world.
3
Environmental Politics in the Transition Economies
Post-Communist governments inherited critical environmental problems. Severe
air pollution, soil degradation, and contamination of rivers and regional seas were
common dilemmas in the region (Asian Development Bank 1997; Carter and Turnock
1993; Weinthal 2002; World Bank 1994). The health effects of environmental
degradation and the active role played by environmental movements in the breakup of the
communist system placed environmental reforms at the top of the political agenda in the
early 1990s. However, the environmental enthusiasm of the early transition period
waned quickly. Economic and social concerns took precedence as some of the worst
environmental problems were alleviated by sharp declines in industrial production.
Almost fifteen years after the collapse of the Berlin Wall, the record of
environmental policy reform varies considerably across the post-Communist world.
Countries such as Poland, the Czech Republic, Slovakia, Slovenia, and Hungary have led
the way in strengthening environmental legislation and institutions. They were able to
reduce pollution even after their economies began to grow. Others countries – such as
Romania and Bulgaria – have improved their environmental legislation, but are hampered
by a weak institutional capacity for implementing these reforms. Still other transition
economies – including Russia, Ukraine, and Kazakhstan – have implemented only the
most basic environmental policies (Andonova 2003a; Carter and Turnock 2002;
Ichikawa, Tsutsumi, and Watanabe 2002; Klarer and Moldan 1997; Kotov and Nikitina
2002; OECD 1999b; OECD 2000; Vovk 2003).
Similarly, the extent to which environmental laws are actually implemented also
varies considerably across countries in the region. Virtually all transition countries have
4
developed economic instruments to facilitate such implementation; for example, many
introduced charges, taxes, and penalties intended to stimulate investments in pollution
abatement. Post-Communist states also established special extra-budgetary
environmental funds – financed by environmental charges, taxes, and penalties – to
provide public support for environmental investments. As we explain later, these are
critical instruments and we focus on them throughout this paper. But the ability of
environmental authorities to enforce these instruments is often weak. Environmental
ministries and inspectorates are typically in a tenuous position. It is politically infeasible
to penalize enterprises for environmental damage while they struggle to adjust to
domestic economic reforms and increasing international competition (Bluffstone and
Larson 1997; Ichikawa, Tsutsumi, and Watanabe 2002; OECD 1999a; REC 1999,
2001b).
Recent studies reveal that apart from a few countries – such as Poland and the
Czech Republic – the overall environmental tax burden on industry has been kept low
and does not provide strong incentives to undertake environmental improvements
(Bluffstone and Larson 1997; REC 1999, 2001b). An even more significant enforcement
problem is the low rate at which charges and penalties are collected. This problem is
especially severe in CIS countries – such as Russia, Ukraine, and the Central Asian
republics – which have emphasized export-led growth based on the development of
natural resources while facing little domestic pressure to penalize polluters. Pollution
offset schemes under which polluters are temporarily relieved from emissions charge
payments in exchange for a largely unenforceable commitment to use those resources for
environmental investments are widespread in these countries (Ichikawa, Tsutsumi, and
5
Watanabe 2002; Kotov and Nikitina 2002; OECD 1999a, 2000). However, this problem
is not limited to the CIS states: the capacity and willingness of CEE states to enforce
environmental legislation is also a matter of considerable concern (Commission of the
European Communities 2001).
In sum, the opening and restructuring of transition economies has been
accompanied by divergent trends in environmental protection. Virtually all countries, but
particularly the EU accession states, have updated their environmental legislation and
reduced the overall level of pollution. The enforcement of environmental regulations,
however, has remained lax and even deteriorated in many cases. The purpose of our
analysis is to address whether differences in the exposure of post-Communist countries to
the global economy helped to shape variations in their environmental governance.
To examine the impact of trade on environmental policy, we analyze the per
capita size of national environmental funds. These funds, capitalized primarily by
environmental taxes and fees, are among the most important environmental instruments
in transition countries. They were intended to compensate for the underdeveloped
financial systems of these countries during the transition period (Anderson and Zylicz
1999; Ichikawa, Tsutsumi, and Watanabe 2002; OECD 1999a; REC 2001).2 The relative
size of the environmental funds collected is a good indicator of regulatory enforcement
since it reflects both the level of environmental fees and fines imposed on polluters as
well as the ability of governments to collect them. It is also a good measure of the
2
Although the environmental funds were conceived as transitional instruments that would eventually give
way to private financing, their statutes did not include sunset provisions and most funds have persisted as
the single most important source of public financing for the environment (REC 2001b). After 2000, a few
countries – including Slovenia, Estonia, and Russia – ended their environmental funds, while Bulgaria and
Hungary consolidated the environmental fund resources into national budgets for greater fiscal control. In
CEE states, these funds are expected to play an important role in helping to address the environmental
investment needs associated with EU accession (REC 2001b).
6
government’s capacity to support environmental improvements that have been written
into law. We thus examine the effect of trade on the commitment to environmental
policy as reflected in these national funds rather than simply the adoption of
environmental regulations.
The Argument
As a group, post-Communist states have made considerable headway in trade
liberalization since the fall of the Berlin Wall (EBRD 1999; Frye and Mansfield 2003;
Murrell 1996; Rodrik 1992). On average, foreign trade was about 70% of gross domestic
product (GDP) for these states in 1990. This figure rose to about 100% in 1992 and has
remained close to that level since. Nonetheless, not all countries have displayed the same
interest in opening their markets to foreign trade. Some states (for example, Uzbekistan)
have chosen to retain closed trading regimes, and others (for example, Ukraine) have
been slow to increase their exposure to foreign competition. Have differences in the
commercial openness of transition economies influenced the quality of environmental
governance?
Economic research suggests that the linkage between trade and the environment
in the post-Communist world is ambiguous.3 Existing studies have distinguished three
dimensions along which the environmental effects of trade are likely to vary: scale,
composition, and technology. The scale effect reflects the overall environmental impact
of economic growth, stemming from trade as well as other sources. Growth is likely to
increase the consumption of a country’s natural resources and generate pollution. At the
3
For reviews of the literature on the relationship between international trade and the environment, see
Copeland and Taylor 2004; Dean 2001; Fredriksson 1999; and Low 1992.
7
same time, however, rising income is expected to increase the demand for environmental
protection. The latter is reflected in the Environmental Kuznets Curve (EKC), which
stipulates that the initial increase in pollution associated with growth will give way to
declining levels of pollution as societies reach a certain level of prosperity and demand
higher environmental quality (Grossman and Krueger 1993). The composition effect
reflects changes in the relative size of polluting sectors, and thus could have positive or
negative environmental implications depending on countries’ factor endowments and
comparative advantage. Finally, the technology effect reflects the expectation that trade
will contribute to the diffusion of cleaner technologies and to efficiency gains. Trade
openness together with restructuring is likely to be associated with environmentally
beneficial efficiency and technology gains as well as a cleaner sectoral mix. However, as
critics of globalization fear, international competition coupled with the economic
hardship of transition may also induce laxer enforcement of environmental regulations
and unchecked exploitation of natural resources. Economic theory therefore does not
provide clear expectations about the effects of heightened openness on environmental
governance.
By contrast, the policy effects of trade in transition economies, which is the main
focus of our analysis, suggest that a race to the bottom is likely to occur. Two sets of
policy-related factors, however, could contribute to a positive relationship between trade
and the quality of environmental governance in these countries. First, heightened trade
may contribute indirectly – as suggested by the EKC via increasing income – to greater
demand for environmental regulations and quality. Second, firms in transition economies
that aim to export products to valuable markets with stringent environmental regulations,
8
such as the EU or the United States, may have incentives to press for increased regulatory
standards at home (Andonova 2003a; Mol 2001; Vogel 1995). However, we expect these
factors to be outweighed by others that contribute to an inverse relationship between
trade openness and environmental governance.
The political logic of post-Communist states suggests that increased exposure to
global markets is likely to stimulate a deterioration of environmental governance. This
effect stems from both the demand side and supply side of politics: that is, from firms’
and governments’ incentives in the face of increasing openness. Heightened exposure to
foreign competition is likely to put pressure on firms to reduce costs, increasing their
resistance to environmental regulations. Governments that levy taxes and fines on firms
to finance environment funds increase the costs of production, thereby degrading firms’
competitiveness. Import-competing firms may lose market share to cheaper goods
produced overseas. Exporters may find that their products are now more expensive and
consequently that they face dampened demand abroad. As trade becomes more important
to the economy, more firms are hurt by environmental regulations, thus widening the
coalition pressing for their reduction or abolition. This demand-side pressure means that
significant opposition to environmental taxes (which support the funds) might exist and
grow with rising trade dependence.
On the supply side, when governments are trying to build coalitions for market
reforms in general, and trade liberalization in particular, they cannot afford to alienate
key industrial interests. Hence, such governments may be reluctant to increase taxes or
regulations that important economic interests oppose, potentially undermining support for
the broader reform package. Furthermore, when trade expands, public officials might
9
lower the taxes and penalties that generate the revenue for environmental funds or reduce
their collection efforts out of fear of damaging the competitiveness of crucial domestic
industries and thus precipitating a macroeconomic downturn. Such economic problems
can jeopardize the government’s hold on power. In sum, then, reductions in
environmental budgets or laxity in collecting funds may result from both supply-driven
and demand-driven political pressures arising from heightened trade openness.
Russia is probably the best-documented case in the region of rapid economic
liberalization accompanied by deteriorating environmental governance. This country
markedly increased its exposure to world markets in the early 1990s and its foreign trade
subsequently soared from around 30% of GDP in 1991 to about 70% by 2000. During
the same period, the Federal Ministry of the Environment and Natural Resources,
established in 1991, was downgraded to a State Committee on the Environment in 1996
and disbanded altogether in 2000. The enforcement of environmental regulations,
charges, taxes, and penalties throughout the decade has been characterized as “abysmal,”
and the system of environmental funds was abolished in 2001 (Danilov-Daniliyan 2002;
Darst 2001; Kotov and Nikitina 2002; National Intelligence Council 1999; Tavernise
2003; Vovk 2002). Even Russian President Vladimir Putin admitted that “Right now,
industries are not held responsible for harming the environment” (quoted in Tavernise
2003).
Crucial to the links between trade openness and environmental policy in Russia in
the late 1990s are the incentives of both industries and politicians for lax environmental
standards. Victor Danilov-Daniliyan (2002), the former Chairman of the State Committee
on Environmental Protection, emphasizes that industrial lobbies, fearful that
10
environmental regulations would undercut their international competitiveness and profits,
have been instrumental in undermining environmental policy in Russia. Firms,
increasingly squeezed by international markets and structural reforms, have demanded
exemptions and even the reversals of environmental taxes and penalties, thereby
substantially reducing the resource base of national and regional environmental funds
(Danilov-Daniliyan 2002; OECD 1999). In fact, Kotov and Nikitina (2002, 12) point out
that “in 1996 according to official data about 2412 firms in Russia were exempt from
payments for pollution, and for 1251 firms the level of payments was reduced.”
Norlisk Nikel, Russia’s largest exporter of nickel and other non-ferrous metals, is
a well-document example of a major polluter that was able to secure lax environmental
regulations while expanding its share in international markets (Darst 2001; Honneland
2003; Kotov and Nikitina 1996). The company increased its exports significantly during
the 1990s, from 87,000 tons in 1993 to 120,000 tons in 1995. It controlled about 26% of
the world market for nickel and important shares of the world markets for copper, cobalt,
platinum, and palladium (Kotov and Nikitina 1996). As Norilsk Nikel expanded its
presence in international markets during the 1990s, it remained Russia’s largest source of
air pollution and one of the largest transboundary emitters of sulfur in Europe (Barrett
2000). Citing cost and competitiveness concerns, the enterprise defied international
efforts during the 1990s to support pollution abatement and was exempted on a number
of occasions from paying domestic pollution taxes and penalties (Honneland 2003; Kotov
and Nikitina 1996). In 2001, the Russian Supreme Court even reversed some of the
environmental payments of the company, referring to a contradiction between the federal
tax law and environmental regulations (Danilov-Daniliyan 2002).
11
The primacy of export-led growth based on Russia’s natural resources has not
only increased demand for lax environmental regulation on the part of enterprises, but
also reduced the willingness of the Russian government to impose strict environmental
regulations. Tavernise (2003), for example, reports that the Russian government has
given a free hand to companies in the export-oriented gas, oil, and timber sectors to
expand unencumbered by strict environmental regulations. Environmental protection is
left largely to the “consciousness” of large domestic and multinational companies
operating in these sectors (Tevernise 2003). The increasing share of export earnings in
government budgets, combined with other factors such as corrupt institutions and the lack
of company transparency, stifles incentives to enforce environmental taxes and penalties
that may undermine industries’ competitiveness. In the case of Norilsk Nikel, whose
1995 tax contribution to the budget was in the order of 3 trillion rubles (Kotov and
Nikitina 1996), the federal government had a clear interest in supporting the company’s
international competitiveness with all possible measures, including lax environmental
regulation. Incentives to undersupply environmental enforcement vis-à-vis enterprises
engaged in international trade are even stronger at the local level, where such enterprises
provided not only tax revenue, but also employment and essential infrastructure
(Honneland 2003; Tevernise 2003).
The Russian case thus illustrates precisely the mechanisms that environmentalists
feared would lead trade openness to stimulate political pressures to relax environmental
policies. Compounded by problems such as weak institutions and corruption,
globalization has increased both firms’ demands for and the government’s willingness to
supply lax enforcement of environmental regulations, which in turn undermined the
12
viability of Russia’s environmental funds. The limited evidence available from other CIS
countries similarly suggests that the primacy attributed to export-led growth, coupled
with weak institutions and widespread corruption, has resulted in weak implementation of
environmental regulations vis-à-vis industrial enterprises and has reduced the funds
available for environmental governance (Asian Development Bank 1997; Ichikawa,
Tsutsumi, and Watanabe 2002; OECD 2000; Vovk 2003).
In the CEE countries, the process of EU integration required significant
environmental reforms and partially offset the negative environmental incentives
associated with globalization. Even for CEE countries, however, anecdotal accounts
have linked competitiveness concerns, weak domestic institutions, and cases of lax
environmental control of major industrial polluters (Bluffstone and Larson 1997; Jacoby
1999). Anecdotal evidence is insufficient, however, to determine the prevailing effect of
trade and economic liberalization on environmental policy. Case studies reveal that the
experiences of countries and, in some cases, even sectors and firms in a single state may
vary (Andonova 2003a; Bluffstone and Larson 1997). A more systematic, quantitative
analysis is therefore in order to test the prevailing impact of openness on environmental
governance. We now turn to such an analysis.
A Statistical Model of Environmental Governance
Little evidence has been accumulated on whether there is a race to the bottom in
environmental standards stemming from commercial globalization. No research that we
are aware of focuses on the post-Communist world. However, there is a burgeoning
empirical literature on other aspects of the political economy of the environment. Failing
13
to account for the factors emphasized in this literature could yield misleading results if
they are systematically related to environmental policy and to globalization. As such, the
following model of environmental governance includes many of these factors as well as a
variable designed to assess the extent of any race to the bottom among the postCommunist countries.
Environmental Governanceit = 0 + 1Opennessit + 2Developmentit +
3Growthit + 4Landit + 5Environmental Governancei(t-1) + eit
The dependent variable in this model is the national environmental funds spent by
each country, i, in each year, t, divided by i’s national population in t. Data on these
expenditures are taken from the OECD (1999a) and the REC (2001a). Data on national
population are taken from the World Bank Development Indicators.
Most empirical studies of trade and the environment conducted in the last decade
analyze the level or intensity of pollution, emphasizing the environmental effects of
economic growth, efficiency gains, technology diffusion, and changes in the structure of
the economy (e.g., Scruggs 2003). In most of these analyses, therefore, trade influences
environmental policy only indirectly by increasing incomes; in fact, per capita income is
often used as a proxy for policy (e.g., Copeland and Taylor 2003). While gaining a fuller
understanding of such economic processes and their effect on environmental outcomes is
obviously important, these studies do not confront directly the race to regulatory bottom
hypothesis, which posits that globalization will create political pressure to weaken
environmental policies in emerging markets. It has been suggested that lack of adequate
data and analyses on regulations and regulatory enforcement may have masked the extent
of a regulatory race to the bottom or a regulatory chill stemming from the pressures of
14
globalization (Smarzynska and Wei 2001; Zarsky 1999). We focus precisely on this gap
in the literature, examining the relation between trade and the strength of regulatory
policies in the post-Communist world.
One reason why there is only a limited and inconclusive body of literature
addressing the impact of globalization on environmental policy is the difficulty of
operationalizing the dependent variable. For advanced industrial countries, the
environmental abatement costs of highly polluting industrial sectors have been used as a
proxy for the stringency of environmental regulations (Ederington and Minier 2003; Jaffe
et al. 1995). Such data, however, are often impossible to obtain for developing countries,
especially those with weak and non-transparent institutions, precisely where the race to
the bottom effect is likely to be most pronounced and best hidden. Studies that examine
the effect of trade on the environmental policies of a broader sample of countries
typically resort to using indirect proxies of regulations, such as membership in or
ratification of international environmental treaties (Smarzynska and Wei 2001); the
strength of environmental nongovernmental organizations (NGOs) (Damania,
Fredriksson, and List 2003; Smarzynska and Wei 2001); lead content in petrol (Damania,
Fredriksson, and List 2003); and the Dasgupta index of environmental policies (Damania,
Fredriksson, and List 2003; Eliste and Fredriksson 2002). While external treaty
commitments and the strength of local advocates are likely to influence domestic
regulations, these factors offer an incomplete picture of domestic environmental policies
and tell us relatively little about the implementation and enforcement of these policies.
Only the Dasgupta index is a direct, albeit subjective, measure of environmental
regulations. The index measures the level of environmental governance in 1990, based
15
on data from a survey of environmental officials attending the 1992 Earth Summit in Rio
de Janeiro (Dasgupta et al. 1995). The Environmental Sustainability Index (ESI) is a
more recently constructed policy index of environmental sustainability with a nearly
global coverage, but still provides data for only a few isolated years (Levy 2002). Such
indicators are generally difficult to construct and controversial, since they involve a
subjective decision about what components to include.
To overcome the problem of measuring the effect of openness on governmental
policy, we use the size of national environmental funds as a proxy for environmental
governance in transition countries. As we explained earlier, the environmental funds in
post-Communist countries use revenues generated primarily through environmental
taxes, fees, and penalties to support environmental investments. By relying on a measure
that reflects the stringency and the enforcement of environmental taxes and penalties, our
study will be one of the first to address the hypothesis that globalization undermines the
political will of states to enforce environmental regulations. Our dependent variable also
measures the capacity of governments to implement environmental policy. In developing
and transition countries – where enterprises and municipalities are often strapped for
capital – government capacity and assistance to offset the costs of pollution abatements is
frequently a precondition for implementing environmental rules and reflects the
government’s commitment to effective environmental reforms (Andonova 2003a; Haas,
Keohane, and Levy 1993; Koehane and Levy 1995).
An OECD (1999) survey of environmental funds in post-Communist countries
reveals that the largest share of funds financing in the region supported air and water
pollution abatement, followed by waste management and nature protection. In the period
16
from 1993 to 1997, for example, Bulgaria, the Czech Republic, Estonia, and Poland
allocated over 30% (in the Czech Republic, as much as 57%) of their environmental
funds for financing for water projects. The financing primarily supported municipal
waste water treatment and infrastructure, targeted at improved water quality. Reducing
air emissions from industrial enterprises was another priority. Slovenia, Hungary, the
Czech Republic, Poland, Bulgaria, and Russia allocated large shares (84%, 22%, 37%,
33%, 9%, and 5% respectively) of their national funds financing to support air pollution
abatement projects. Fund resources also went to waste management and in the case of
many countries that were formerly part of the Soviet Union (FSU) (such as Russia,
Kazakhstan, Ukraine, Moldova, and Uzbekistan) to nature protection. Countries such as
Kyrgystan, Moldova, and Uzbekistan that generated relatively limited resources for their
funds, were less capable of supporting investments in pollution abatement infrastructure
and directed a greater share of fund resources to environmental education, monitoring,
research, and strengthening of environmental authorities and NGOs.
To be sure, environmental regulation does not necessarily depend on the
availability of public financing. The “polluter pays” principle is fundamental to
environmental law and is embedded in a range of regulatory instruments such as emission
limits, tradable pollution permits, and technology standards. The environmental funds,
which reflect environmental taxation and public subsidies, are only one instrument of the
environmental policy mix in post-Communist countries. However, in the absence of
more comprehensive measures of regulatory stringency, the size of these environmental
funds is one of the better proxies for environmental policy outside of OECD countries.
Moreover, as Table 1 shows, this measure is positively correlated with other less direct
17
proxies of environmental governance available for selected years, including all of the
extant empirical measures used, such as the ratification of international environmental
treaties, the 2001 Environmental Sustainability Index, the 1997 index compiled by the
European Bank for Reconstruction and Development (EBRD) on air pollution
regulations, and a measure of the strength of environmental NGOs.4
The relative magnitude of environmental funds across post-Communist countries
also corresponds with these countries’ overall environmental policy performance, as
documented by qualitative studies. Figure 1 ranks the countries according to the mean
value of their annual environmental funds per capita, Environmental Governanceit, which
is our dependent variable. At the top of the scale are the Czech Republic, Poland,
Hungary, and Slovenia, states that are widely considered to have made the most
successful environmental reforms in the post-Communist world (Andonova 2003a;
Ichikawa, Tsutsumi, and Watanabe 2002; OECD 1999a; REC 2001a). Government
officials in Poland and the Czech Republic have suggested that the ability of these states
to institute a strong system of regulation and enforcement early in the transition period
and to use the resources generated from enforcement to offset some of the cost of
environmental investment has been critical for staying the course of environmental
reforms after public support for the environment declined in the 1990s (Andonova
2003a). A survey of economic instruments for environmental policies in CEE indicate
that both the Czech Republic and Poland have a system of relatively high air and water
pollution charges, Poland’s air pollution charges being among the highest in Europe.
Data on environmental treaty participation is taken from the CIESIN’s “Environmental Agreement
Dataset,” Columbia University, April 19, 2002. Data on the 2001 Environmental Sustainability Index is
found at http://ciesin.columbia.edu/indicators/ESI/ESI_01_tot.pdf. For the EBRD index, see EBRD 1997.
The measure of NGO strength is the number of IUCN member organizations by year for each country.
These data were obtained from the IUCN.
4
18
Slovenia has been one of the first European countries to introduce a tax on carbon
dioxide emissions, intended to raise revenue as well as to provide incentives for less
carbon intensive development. These countries also have collection efficiency rates of
approximately 97%, which compare favorably to other CEE countries, such as Bulgaria
and Lithuania, where collection efficiency rates for penalties and taxes are only 50%80% and 50%-60% (REC 1999). While similar data on environmental taxes and
collection rates are not available for FSU countries, numerous anecdotal accounts point to
the weak enforcement capacity and corruption, and the resulting low or nonexistent
collection of environmental fees and fines as a major impediment to effective
environmental governances (Ichikawa, Tsutsumi, and Watanabe 2002; Kotov and
Nikitina 1996; OECD 1999a; OECD 2000). Not surprisingly, countries with the weakest
capacity for environmental governance – such as Moldova, Azerbaijan, Uzbekistan, and
Turkmenistan – rank lowest on the scale of environmental funds (see Figure 1).
Turning to the independent variables, Opennessit is the sum of state i’s imports
and exports divided by its GDP in year t. Globalization is a multifaceted concept. As
noted earlier, we focus on the globalization of foreign trade because many studies
analyzing whether there is a race to the bottom of environmental regulation center on
trade (Andonova 2003a; Copeland and Taylor 2004; Frankel and Rose 2002) and because
trade is obviously a crucial aspect of globalization (Garrett 1998; Rodrik 1997). Later,
however, we examine whether the impact of globalization on environmental governance
stems from other aspects of economic openness in the post-Communist world.
The remaining independent variables are included to account for political and
economic factors that previous research has linked to environmental policy. Over the
19
past decade, studies of the environment have displayed a growing interest in the effects of
per capita income (Grossman and Krueger 1993). As we mentioned earlier, much of this
research focuses on the Environmental Kuznets Curve. Underlying the EKC is the
argument that as poor countries experience rising per capita income, pollution first
increases and then – after reaching some threshold – declines. The fall-off in pollution,
according to this argument, stems from the tendency for economic development to
promote environmental concerns in society and a heightened demand for stricter
environmental policies, technological advances that are environmentally friendly, and an
increasing share of services (relative to manufacturing) in the economy.5 The EKC is
thus premised on the view that a positive relationship exists between per capita income
and environmental policy after a certain level of development is reached. For the
transition countries – with both an average per capita income of about $4500 and
widespread concerns about high pollution levels inherited from communism – we
anticipate that a positive relationship will exist between per capita income and the
resources a country is willing and able to collect and earmark for environmental spending
(Smarzynska and Shang-Jin Wei 2001). To test this hypothesis, we analyze
Developmentit, which is the natural logarithm of per capita GDP of state i in year t. In the
same vein, some recent research has found that economic growth increases the demand
for environmental quality (Bhagwati 1993; Copeland and Taylor 2004; Lofdahl 2002).
We therefore analyze Growthit, which is the percentage change in country i’s GDP from
year t-1 to year t.
5
Various studies have estimated the local maximum or tipping point of this inverted U-shaped relationship
to be somewhere between $2,000 and $5,000 per capita, depending on the polluting substance and
estimation method used, although some estimates run as high as $10,000-$15,000 per capita (Stern,
Common, and Barbier 1996).
20
Next, Landit is the natural logarithm of the land area of state i.6 We include this
variable because various studies have suggested that land area affects pollution levels
(Frankel and Rose 2002; Lofdahl 2002; Mitchell 2003). Furthermore, all else being
equal, it is harder to effectively regulate the environment as the size of what is to be
regulated increases. This, in turn, implies that a larger land mass may be associated with
less environmental governance. To account for any temporal dependence in the data, we
include a lagged dependent variable, Environmental Governancei(t-1). Finally, eit is a
stochastic error term.
Our sample is made up of all post-Communist states for which data on
environmental governance are available (OECD 1999a; REC 2001a) over the period from
1994 to 1999 (years t).7 After pooling these data across states and over time, we estimate
the model using least squares regression. Tests of statistical significance are based on
Huber (robust) standard errors that account for any heteroskedasticity in the data and for
the fact that the data are grouped by country.
The Statistical Results
The results of this analysis are shown in the first column of Table 2. They
indicate that our model provides a good fit to the data, explaining 85% of the variation in
Environmental Governanceit. Moreover, the results provide strong evidence that
heightened commercial openness undermines environmental governance in the postCommunist world. Consistent with our argument that greater exposure to the
6
Data on openness, per capita GDP, growth, and land are taken from the World Bank Development
Indicators (cd-rom). Note that data on per capita GDP are expressed in constant US dollars adjusted for
purchasing power parity.
7
The only post-communist countries excluded from our sample due to the absence of data are Armenia,
Bosnia, Georgia, Lithuania, Macedonia, Mongolia, Romania, and Yugoslavia.
21
international economy has led to a race the bottom in the region, the estimate of
Opennessit is negative and statistically significant. The effect of this variable is also
substantively large. Increasing the mean value of Opennessit by one standard deviation
yields more than a one-third decline in the predicted value of Environmental
Governanceit.
Not surprisingly, a post-Communist country’s trade regime is only one of various
factors affecting its environmental policy. Contemporary environmental policy is also
heavily influenced by this policy in the recent past, as indicated by the positive and
statistically significant estimate of the lagged endogenous variable. Of greater
substantive interest is the tendency for environmental standards to rise with the extent of
economic development and the rate of economic growth, since the estimates of
Developmentit and Growthit are positive and statistically significant. Equally, states with
a smaller land mass tend to have more extensive environmental regulation than their
larger counterparts, since the estimate of Landit is negative and significant.
Having generated some initial estimates of our model, it is important to assess the
robustness of these results. First, we address some issues regarding the estimation of our
model. In order to model the dynamics in our data, we have relied on a lagged
endogenous variable. An alternative approach is to estimate our model using feasible
generalized least squares (FGLS), a technique that involves estimating the parameter
coefficients using ordinary least squares and then purging the errors of serial correlation.
Recent research indicates that there are substantial advantages to modeling dynamics via
a lagged dependent variable rather than FGLS, especially when the number of temporal
observations is relatively small (Beck and Katz 1996, 14). In light of the fact that our
22
analysis covers the period from 1994 to 1999, the approach we have taken is therefore
entirely appropriate. Nonetheless, we also omit the lagged endogenous variable and
estimate the model using FGLS and assuming that the errors for each state follow a firstorder autoregressive process common to all post-Communist countries. Like our earlier
results, the estimate of Opennessit is negative and statistically significant. Furthermore,
the remaining estimates are much the same as before, except that the coefficient of
Growthit is no longer significant.
Another issue concerning the estimation of our model is whether there are factors
that are specific to countries in the region (for example, their history or culture) affecting
environmental policy. We have assumed that there are no such factors. To address this
assumption in more detail, however, we also experimented with including countryspecific fixed effects. The results do not allow us to reject the null hypothesis that the
fixed effects should be omitted (F = .72; p = .78). Equally, a Breusch and Pagan (1980)
Lagrange multiplier test provides no indication that the model should be estimated using
a random effects specification. As such, there is no reason to be concerned that our
results are threatened by unmeasured heterogeneity in the data.
Second, it is useful to determine whether the results are being driven by any
particular post-Communist state. We therefore re-estimate the model after removing each
of the seventeen states in our sample, one at a time. The results are remarkably
consistent. There is no case in which an estimate in the first column of Table 2 changes
sign. There are only three instances where a statistically significant estimate becomes
insignificant, all of which involve Growthit. Most important for our purposes, however,
23
is that the estimate of Opennessit is negative, statistically significant, and relatively large
in each of these seventeen regressions. As such, no single country is driving our results.
Third, we have treated the effects of Opennessit as exogenous. It is also
important, however, to ensure that our results are not undermined by any simultaneity
bias that could emerge if a country’s environmental policy affects its trade openness
(Frankel and Rose 2002). Lately, various observers have advanced a “pollution haven”
hypothesis (Copeland and Taylor 2004). Countries with environmental policies that
impose substantial costs on firms may see their trade competitiveness erode and firms
migrate to countries with laxer regulatory regimes. Costly environmental policies might
then stimulate a rise in imports, thereby threatening domestic industries and increasing
unemployment. Hence, trade patterns could be shaped by the extent and nature of
countries’ environmental policies.
To address this issue, we re-estimate our model using instrumental variables
regression. Recent research indicates that the trade policies of post-Communist countries
are influenced by their GDP and regime type, the number of “veto players” in
government, and whether they were part of the Soviet Union (Frye and Mansfield 2003).
To create an instrument for Opennessit, we use these variables, the four independent
variables other than Opennessit in our model, and a dummy variable indicating whether
each country was a member of the General Agreement on Tariffs and Trade (GATT) or
the World Trade Organization (WTO).8 The results of this analysis are reported in the
second column of Table 2 and continue to furnish strong evidence of a race to bottom in
the region. The estimate of Opennessit is negative and statistically significant.
8
Data used to construct this instrument are taken from Frye and Mansfield (2003) and from the WTO
(http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm).
24
Furthermore, it is virtually the same size regardless of whether we treat Opennessit as
endogenous or exogenous.
Fourth, we have defined trade openness as the sum of each country’s exports and
imports in each year, divided by its GDP in that year. Although this measure is very
widely used, it is useful to consider whether the effects of openness are primarily
determined by either imports or exports. To this end, we replace Opennessit with country
i’s imports divided by its GDP in year t. We then replace it with i’s exports divided by its
GDP. The results – shown in the third and fourth columns of Table 2 – indicate that the
estimates of these variables are the same size and that both of them are negative and
statistically significant. Consequently, the observed effects of trade openness on
environmental policy are not being driven by either imports or exports alone.
The Effects of International Institutions
Another issue that merits attention is whether variables that are not included in
our model account for the observed effect of openness on environmental governance. A
wide variety of tests, however, provide no evidence of this sort. To ensure that openness
does not reflect other aspects of trade policy, we include a variable indicating whether
state i had formally applied for membership in the European Union (EU) as of year t,
another variable indicating whether i had signed an association agreement with the EU as
of t, and a third variable measuring whether i was a party to the GATT or the WTO in t.9
As reported in the first three columns of Table 3, these variables do not have a strong
9
Data on EU membership and association agreements are taken from Europa
(http://europa.eu.int/comm/enlargement/pas/europe_agr.htm). Data on GATT/WTO membership are taken
from WTO (http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm).
25
influence on environmental governance. Moreover, including them in our model has
little effect on the size of Opennessit and no effect on its sign or significance level.
These findings do not imply that the EU had had no effect on environmental
regulation in the post-Communist world. In fact, recent research provides considerable
evidence that it played a key role in stimulating the reform of environmental regulations
in the Central and East European countries that were candidates for EU membership
(Andonova 2003a; Baker and Jehlicka 1998; Holzinger and Knoepfel 2000).10 Our data
suggests that there is high correlation between the level of countries’ Development and
their EU Applicant or EU Association status (correlation coefficient .88 and .50
respectively), which partially accounts for the lack of statistical significance of the EU
variables in our model. Our results also indicate that while the EU may have had a strong
impact on the adoption of environmental laws in Central and Eastern Europe, its impact
on environmental policy implementation in the broader sample of post-Communist
countries is much weaker, particularly after we control for level of development.
Nonetheless, various studies have found that other international institutions have a
pronounced influence on environmental quality. One set of studies concludes that states
participating in international environmental institutions and protocols realize a reduction
in pollution levels (Helm and Sprinz 2000; Mitchell 2003). As such, we analyze Treaty
Participationit, which is the number of environmental treaties and protocols to which
state i is a party, as of year t.11 Another set of studies emphasizes that institutions
designed to promote economic development became an important part of the
10
The ten transition countries that are in the process of EU membership negotiations are: Bulgaria,
Hungary, Estonia, Latvia, Lithuania, the Czech Republic, Poland, Romania, Slovakia, and Slovenia.
11
Data for this variable are taken from the CIESIN’s “Environmental Agreement Dataset,” Columbia
University, April 19, 2002.
26
transnational policy network established to support environmental reforms in transition
countries. The first decade of post-Communist transitions coincided with increased
pressure for the greening of multilateral development institutions (Gutner 2002; Nielson
and Tierney 2003). The World Bank, for example, saw an opportunity in the region to
increase the share of its environmental lending and to stimulate policies encouraging both
greater economic efficiency and environmental improvements (Connolly, Gutner, and
Bedarf 1996; Gutner 2002). More generally, international financial institutions (IFIs)
might insist that states improve the quality of environmental governance as precondition
for granting assistance; or the receipt of assistance could promote growth, thereby
increasing the demand for environmental quality, as we discussed earlier. On the other
hand, states receiving economic assistance from an IFI may be unable or unwilling to
devote scarce resources to improving environmental governance.
To address these issues, we analyze three dummy variables indicating whether
state i receives aid (loans or grants) from the World Bank, the International Monetary
Fund (IMF), or the EBRD, respectively, in year t.12 Of these three variables and Treaty
Participationit, only the EBRD has a statistically significant effect on environmental
regulation. As shown in Table 3, post-Communist states that receive aid from this
organization have relatively poor environmental governance, which probably reflects the
tendency for the EBRD to assist countries with especially serious economic and
environmental problems. Nonetheless, including these variables has no bearing on the
12
Data on IMF assistance are taken from Vreeland (2003); data on EBRD loans are taken from EBRD
(various years); and data on World Bank assistance are taken from World Bank
(http://lnweb18.worldbank.org/ECA/eca.nsf/General/E6B6CA3E53D868DB85256C37005CC332?OpenDo
cument).
27
estimate of Opennessit, providing additional evidence of a race to the bottom in the postCommunist world.13
The Effects of Domestic Politics
Besides international institutions, domestic political conditions might affect both
commercial openness and environmental regulation. One obvious possibility is that a
country’s regime type influences both factors. Various studies have found that
democracy fosters trade liberalization (Frye and Mansfield 2003, 2004; Milner with
Kubota forthcoming). There has also been some speculation that democracy may
promote environmental governance (Frankel 2003). To measure each state’s regime
type, we rely on two variables. The first is Polityit, a 21-point index that was developed
by Jaggers and Gurr (1995).14 This variable measures five institutional features in state i
as of year t and ranges from -10 for a highly autocratic state to 10 for a highly democratic
one. The second, ACLPit, was developed by Przeworski, Alvarez, Cheibub, and Limongi
(2000). It equals one if elections in country i are contested as of year t, 0 otherwise. As
shown in the first two columns of Table 4, neither measure of regime type has a
statistically significant effect on environmental governance. Nor does including these
variables influence the coefficient of Opennessit.
In addition, a number of recent studies have concluded that the fragmentation of
political power has spurred reform in post-Communist countries (Frye and Mansfield
13
In addition to analyzing whether the receipt of aid or loans influences environmental governance, we also
addressed the effects of loans that are earmarked for environmental purposes. More specifically, we
include the total value (in dollars) of all “brown” and “green” loans that country i received in year t from
the EBRD or from the World Bank, respectively, using data compiled by Parks, Tierney, Roberts and Hicks
(2004). Neither variable, however, is statistically significant and including them (separately or together)
has no effect on the remaining variables in the model.
14
Data for this variable are taken from http://weber.ucsd.edu/~kgledits/Polity.html and
ftp://isere.colorado.edu/pub/datasets/p4/p4vksg.asc.
28
2003; Hellman 1997, 1998). To analyze whether fragmentation has promoted
environmental reform, we include two variables. First, Presidential Powerit is a measure
of the extent to which power is concentrated in a country’s chief executive. It was
developed by Shugart and Carey (1992) and modified by Frye (2002) to the fit the postCommunist world. As the value of this variable declines, fragmentation rises. Second,
Fragmentationit is a five-point index of the concentration of political power within
country i’s national government in year t. Created by Frye, Hellman, and Tucker (2000),
this variable adapts to the post-Communist countries Roubini and Sachs’ (1989) measure
of the number of partisan actors that can block policy change.
We also include a measure of political partisanship that indicates whether country
i’s chief executive is leftist, rightist, or centrist (Frye 2002). There is reason to expect
that right-of-center leaders will be especially pro-business and therefore reluctant to
impose regulations (environmental or otherwise) on industry. Such leaders might also be
inclined to liberalize trade. Partisanship could therefore account for the inverse
relationship between the openness of overseas commerce and environmental governance.
Finally, we include variables indicating whether country i is a former Soviet republic or
whether it was at war (either external or civil) in year t. A number of studies have found
that less reform has taken place in countries that were part of the Soviet Union than in
other post-Communist states (Andonova 2003a; Asland, Boone, and Johnson 1996); and
war may create additional pollution and reduce the willingness of public officials to
impose environmental regulations on industry.15
15
Data for these variables are taken from Frye (2002), Frye, Hellman, and Tucker (2000), and (in the case
of war) the Correlates of War Project (http://cow2.la.psu.edu).
29
As shown in Table 4, however, none of these variables has a strong influence on
environmental governance. Furthermore, including them has very little bearing on the
estimated effects of trade openness. These results therefore provide no evidence that
domestic political conditions underlie the race to the bottom in the post-Communist
world.
The Effects of Economic, Demographic, Geographic,
and Environmental Conditions
In addition to political factors, it is important to ensure that economic and
demographic factors, as well as the environmental conditions that governments inherited
after the collapse of the Berlin Wall, do not account for the inverse relationship between
openness and environmental regulation. First, it is well known that economically large
states tend to be less open than their smaller counterparts. Large states may also be better
able to raise sizeable national environmental funds. Second, aggregate government
spending might be driving this relationship. Governments might spend large sums of
money on the environment because they are generally interventionist. If so, they also
might be inclined to regulate overseas commerce, thereby reducing openness, and to
spend freely on various social, economic, and political activities.
Third, in countries where the domestic oil industry plays an important economic
role, the oil and gas sector is likely to be politically potent and to fight efforts to regulate
pollution. Since this sector is likely to depend on foreign markets and therefore to have a
preference for commercial openness, whether a country derives substantial revenues from
oil could account for the inverse relationship between openness and environmental
30
regulation.16 Fourth, it is important to consider the effects of foreign direct investment
(FDI). The race to the bottom argument suggests that greater exposure to international
markets stimulates increasing pressure to reduce environmental standards, since countries
with higher standards will suffer economically if foreign firms choose to locate in and do
business elsewhere. One implication of this argument is that the flows of FDI into state i
in year t should not be positively associated with the extent of environmental regulation.
Fifth, a recent study has found that economic and political reform in the postCommunist world has followed a pattern of spatial diffusion (Kopstein and Reilly 2000).
Countries with capitals that are geographically close to the West have engaged in more
extensive reforms than countries that are farther away. It is useful to see whether such
diffusion might be driving the inverse relationship between openness and environmental
regulation. Sixth, some research has indicated that pollution tends to rise with population
density (Frankel and Rose 2002). If increased pollution stimulates greater environmental
regulation and if greater population density spurs demands to restrict openness (perhaps
by increasing unemployment, which often creates protectionist demands), then
population density might be driving our earlier results. Seventh, it is important to
consider the effects of the environmental conditions at the time of the Soviet bloc’s
demise. Countries with especially serious initial environmental problems might be
expected to spend more to resolve these problems during the 1990s.
As shown in Table 5, however, none of these factors has a strong influence on
environmental governance in the post-Communist world. We included the GDP of
16
The same might also be the case for states with a large manufacturing sector. Further, a large sector of
this sort might contribute to high levels of pollution, sizable taxes on this pollution, and hence large
environmental funds. However, we find no evidence that a country’s manufacturing value added as a
percentage of its GDP in year t is strongly related to environmental governance, and the estimate of
Opennessit remains negative and statistically significant when this variable is included in the model.
31
country i in year t, i’s government spending as a percentage of GDP in t, a dummy
variable indicating whether it was heavily dependent on oil revenue, its net inflows of
FDI in t, its population density in t, the distance (in miles) between its capital city and
Vienna, its SO2 emissions (in metric tons) per populated kilometer in 1990, and its NOx
emissions (in metric tons) per populated kilometer in 1990.17 None of these variables has
a statistically significant effect on Environmental Governanceit. Moreover, including
them has no bearing on the sign, size, or significance of Opennessit.
Finally, we considered the effects of the existing environmental conditions for
each country in every year analyzed here. Doing so is useful because the inverse
relationship between openness and environmental regulation could stem from a tendency
for heightened trade to drive highly polluting firms out of business, thereby reducing the
taxes collected on such firms and consequently the size of the environmental funds.
Indeed, this possibility is suggested by the composition effect that we mentioned earlier
and that has been emphasized in some economic research on the environment (e.g.,
Copeland and Taylor 2004). To address this possibility, we examine the effects of
aggregate SO2 emissions and aggregate NOx emissions for country i in year t, SO2
emissions per capita and NOx emissions for i in t, and the change in both types of
emissions for i between years t-1 and t, respectively.18 We find no evidence, however,
that any of these variables has a statistically significant effect on environmental
governance. Moreover, regardless of which of these variables is analyzed, the estimate of
17
Data for these variables are taken from the World Bank Development Indicators, Frye (2002), and the
Environmental Sustainability Index (http://ciesin.columbia.edu/indicators/ESI/ESI_01_tot.pdf).
18
Data on aggregate SO2 and NOx emissions is taken from the Cooperative Program for Monitoring and
Evaluation of the Long-Range Transmission of Environmental Pollutants in Europe (EMEP) accessed via
http://www.emep.int/index_data.html, in December 2004; and from Eco-Portal Central Asia accessed via
http://www.eco-portal.kz/modules.php?name=News&file=article&sid=35#21, in December 2004.
32
Opennessit is negative, large, and statistically significant. Indeed, these results continue
to provide strong evidence of a race to the bottom in the post-Communist world.
Conclusion
The countries of East-Central Europe and the former Soviet Union have
undergone massive transformations over the past fifteen years. Particularly important
have been the efforts made by many of these states to increase their integration into the
global economy. Heightened commercial openness has yielded many benefits, but it has
also reduced the ability of governments to exercise environmental governance. Rising
exposure to international economic competition has seemingly reduced both the demand
for and the supply of environmental reform and regulation in post-Communist countries.
Demands by firms for lower environmental taxes and laxer regulation have multiplied,
hampering governmental efforts to collect such taxes and enforce regulations. Moreover,
faced with making fundamental economic and political transitions as well as the
pressures stemming from globalization, governments have placed less emphasis on
environmental governance as their exposure to global markets has increased. Both
anecdotal and statistical evidence strongly supports our argument that heightened
openness has led to an environmental race to the bottom in the post-Communist world.
Scholars studying other regions have suggested that the pressures exerted by
globalization can be constrained and reshaped by domestic political institutions (Adsera
and Boix 2002; Garrett 1998; Swank 2002). In post-Communist countries, however,
heightened openness is associated with weak environmental governance even after
controlling for a range of institutional factors. Furthermore, these factors have little
33
effect on environmental regulation, a finding that may stem from the relative weakness of
political institutions in transition economies. This suggests that where domestic
institutions are weak, policymakers may have difficulty restraining and reshaping the
pressures stemming from globalization. Only when political institutions have
strengthened and matured can countries pursue both an open economy and a cleaner
environment.
A second reason why domestic political factors appear to have little direct impact
on environmental governance is related to the salience of environmental concerns in
transition states. Unlike economic reforms and restructuring, which have been hotly
contested issues, environmental governance in these countries fell to the bottom of the
political agenda over the course of the 1990s. Neither leftist nor rightist governments had
well-defined environmental strategies. Apparently, globalization and concern with
economic redistribution have overridden any tendency for leftist parties, which are
elsewhere more sympathetic to environmental concerns, to play that role in transition
countries. If anything, leftist post-Communist parties that were closely associated with
the business interests of the “red directors” have had even fewer incentives to pursue
increase environmental standards. Similarly, political polarization, which enables the
groups that gain from partial economic reforms to block policy change, has had little
effect on the stringency of environmental regulation. In most transition countries, interest
groups with sufficient political leverage have evoked concerns over competitiveness to
demand lenient application of environmental rules. The process of global integration and
economic liberalization may have indeed overwhelmed the political agenda of transition
34
states at the expense of other important issues, a proposition that merits further
exploration in the post-Communist literature.
Such an interpretation of the limited effect of domestic politics is consistent with
the evidence provided by the case study literature on environmental policy in the
transition economies, which emphasizes the low political priority attributed to the
environment (Carter and Turnock 2002; Kotov and Nikitina 1996, 2002; Pavlinek and
Pickles 2001). Only states that were able to lock in environmental reforms early in the
1990s have had a lasting record of improved environmental governance (Andonova
2003a). That the lagged dependent variable in our model is positive and highly
significant is consistent with this view: the effects of those environmental policies that
are implemented tend to persist from one year to the next.
The role of international institutions is also interesting. In general, these
institutions seem to have had little effect on environmental governance in the postCommunist world. Neither the GATT/WTO, nor the EU, nor the IMF, nor the World
Bank appears to exert much direct influence on these environmental funds. Only
participation in the EBRD loan programs seems to have an impact, and a negative one at
that. These findings diverge from case study analyses concluding that the EU has
influenced environmental policy in CEE states (Andonova 2003a; Holzinger and
Knoepfel 2000) and that international donor institutions have been active proponents of
reform in post-Communist states (Gutner 2002; Weinthal 2002).
This discrepancy suggests that international institutions may be more important at
some stages of environmental policymaking than others. The extant literature implies that
international institutions can facilitate agreements and the formal adoption of
35
international environmental norms, but that they often have only weak and at best indirect
effects on the stringency of domestic implementation (Haas, Keohane, and Levy 1993;
Victor, Raustalia, and Skolnikoff 1998; Wise and Jacobson 1998). Our measure of
environmental policy reflects both the government’s ability to legislate and its desire to
enforce environmental regulations. It appears that international institutions in this region
have not played a significant role in offsetting pressures for lax implementation
associated with globalization. Perhaps this is an area where they might focus more
attention, given the difficulties that national governments may have in doing it alone.
Our research indicates that for countries undergoing massive social, economic,
and political transformation, increasing trade openness creates pressures to reduce
environmental governance. But this finding does not imply that heightened protectionism
is the best way to improve the environment in transition countries. As political
institutions mature, these countries may become better able to shape globalization to their
benefit. Furthermore, the positive scale, composition, and technology effects associated
with trade might arise only over longer periods of time. In the medium run, trade may
promote economic growth and in the long run it may enhance aggregate wealth, both of
which are likely to foster better environmental policy and outcomes. Over time, trade
may also promote a more environmentally friendly mix of industries. It is too early in
these countries’ transition to open, market-based systems to counsel protectionism and
closure, all of which would slow down their economic modernization and the
countervailing pressures it brings for environmental reform.
36
Table 1. Correlations between Environmental Governance and Alternative Measures of
Environmental Policy.
--------------------- Measure ----------------------Treaty
Ratification
EBRD
ESI
NGOs
0.26*
0.86*
0.55*
0.53*
* indicates that the bivariate correlation is statistically significant at the .05 level.
Note: Treaty Ratification measures participation in international environmental treaties; EBRD is
a 1997 index compiled by the European Bank for Reconstruction and Development on air
pollution regulations; ESI is the 2001 Environmental Sustainability Index; and NGO is a measure
of the strength of environmental NGOs. See also fn. 4.
37
Table 2. The Effects of Trade Openness, Economic Development, Growth, and Geographical Size
on Environmental Governance.
- - - - - - - - - - - - Model - - - - - - - - - (1.1)
(1.2)a
(1.3)
(1.4)
Intercept
-6.83***
(1.80)
-6.13**
(2.29)
-5.70***
(1.85)
-7.58***
(1.91)
Openness
-0.015**
(0.006)
-0.016**
(0.007)
____
____
Development
1.68***
(0.34)
1.59***
(0.38)
1.53***
(0.31)
1.69***
(0.36)
Growth
0.035*
(0.018)
0.038*
(0.020)
0.037*
(0.018)
0.035*
(0.018)
Land
-0.399***
(0.188)
-0.385***
(0.129)
-0.401***
(0.116)
-0.366***
(0.111)
Lagged Environmental
Governance
0.682***
(0.045)
0.688***
(0.056)
0.689***
(0.055)
0.688***
(0.055)
Variable
Imports
____
____
-0.026**
(0.010)
Exports
____
____
____
N
R2
94
82
0.85
0.85
94
0.85
____
-0.026**
(0.012)
94
0.85
Note: Entries are feasible generalized least squares estimates with robust (Huber) standard errors
in parentheses. For presentational purposes, each estimate except that of Lagged Environmental
Governance is multiplied by 1,000,000.
a
Estimates are generated using instrumental variables regression.
*** p < .01; ** p < .05; * p < .10. Two-tailed tests of statistical significance are conducted for all
estimates.
38
Table 3. The Effects of Trade Openness on Environmental Governance, Controlling for
International Institutions.
Variable
- - - - - - - - - - - - Model - - - - - - - - - (2.1)
(2.2)
(2.3)
(2.4)
Intercept
-10.90***
(3.37)
-9.56***
(2.14)
-6.81***
(2.10)
-8.66***
(2.77)
Openness
-0.020**
(0.009)
-0.018**
(0.008)
-0.015**
(0.006)
-0.017**
(0.007)
Development
2.57***
(0.77)
2.29***
(0.56)
1.67***
(0.44)
1.90***
(0.47)
Growth
0.044*
(0.024)
0.041*
(0.020)
0.035*
(0.018)
0.037*
(0.020)
Land
-0.594**
(0.213)
-0.540***
(0.184)
-0.397***
(0.137)
-0.371***
(0.102)
Lagged Environmental
Governance
0.665***
(0.055)
0.678***
(0.051)
0.682***
(0.053)
0.672***
(0.055)
EU Applicant
-1.49
(1.14)
____
____
____
EU Association
____
-0.99
(0.72)
____
____
GATT/WTO
____
____
0.014
(0.382)
____
Treaty Participation
____
____
____
-0.005
(0.006)
N
R2
94
94
0.86
0.86
39
94
0.85
94
0.85
Variable
- - - - - - - - - - - Model - - - - - - - - - (2.5)
(2.6)
(2.7)
Intercept
-7.15***
(2.09)
-6.34***
(2.14)
-9.54***
(2.03)
Openness
-0.014**
(0.006)
-0.022***
(0.006)
-0.016**
(0.006)
Development
1.68***
(0.34)
1.72***
(0.47)
2.04***
(0.31)
Growth
0.036*
(0.019)
0.033*
(0.017)
0.044**
(0.020)
Land
-0.393***
(0.118)
-0.455***
(0.142)
-0.360***
(0.114)
Lagged Environmental
Governance
0.689***
(0.057)
0.713***
(0.075)
0.666***
(0.059)
World Bank
0.177
(0.411)
____
____
IMF
____
0.709
(0.411)
____
EBRD
____
____
N
R2
94
94
0.85
0.86
-0.825**
(0.351)
94
0.86
Note: Entries are feasible generalized least squares estimates with robust (Huber) standard errors
in parentheses. For presentational purposes, each estimate except that of Lagged Environmental
Governance is multiplied by 1,000,000.
*** p < .01; ** p < .05; * p < .10. Two-tailed tests of statistical significance are conducted for all
estimates.
40
Table 4. The Effects of Trade Openness on Environmental Governance, Controlling for Political
Conditions.
- - - - - - - - - - - - Model - - - - - - - - - (3.1)
(3.2)
(3.3)
(3.4)
Intercept
-7.54***
(2.56)
-5.80**
(2.45)
-6.52***
(2.00)
-8.09***
(2.40)
Openness
-0.015**
(0.006)
-0.021***
(0.007)
-0.017**
(0.007)
-0.015**
(0.006)
Development
1.80***
(0.45)
1.75***
(0.42)
1.76***
(0.42)
1.91***
(0.41)
Growth
0.031
(0.021)
0.034*
(0.019)
0.038*
(0.019)
0.029
(0.020)
Land
-0.419***
(0.131)
-0.467***
(0.123)
-0.448***
(0.130)
-0.492***
(0.154)
Lagged Environmental
Governance
0.681***
(0.056)
0.680***
(0.058)
0.681***
(0.058)
0.678***
(0.055)
Regime Type (Polity)
-0.016
(0.031)
____
____
____
Regime Type (ACLP)
____
-0.223
(0.310)
____
____
Veto Points
____
____
-0.095
(0.184)
____
Presidential Power
____
____
____
0.041
(0.032)
Variable
N
R2
94
94
0.85
0.85
41
74
0.85
94
0.85
Variable
- - - - - - - - - - - - Model - - - - - - - - - (3.5)
(3.6)
(3.7)
Intercept
-5.03*
(2.48)
-8.34***
(2.66)
-6.89***
(2.03)
Openness
-0.016**
(0.007)
-0.019**
(0.009)
-0.015**
(0.006)
Development
1.54***
(0.41)
1.99***
(0.58)
1.68***
(0.34)
Growth
0.038**
(0.017)
0.034*
(0.018)
0.035*
(0.019)
Land
-0.469***
(0.157)
-0.488***
(0.182)
-0.396***
(0.129)
Lagged Environmental
Governance
0.712***
(0.097)
0.691***
(0.052)
0.682***
(0.058)
Partisanship
0.139
(0.222)
____
____
Former Soviet Republic
____
0.569
(0.616)
____
War
____
____
-0.036
(0.317)
N
R2
76
94
0.87
0.85
94
0.85
Note: Entries are feasible generalized least squares estimates with robust (Huber) standard errors
in parentheses. For presentational purposes, each estimate except that of Lagged Environmental
Governance is multiplied by 1,000,000.
*** p < .01; ** p < .05; * p < .10. Two-tailed tests of statistical significance are conducted for all
estimates.
42
Table 5. The Effects of Trade Openness on Environmental Governance, Controlling for
Economic, Demographic, Geographic, and Pre-existing Environmental Conditions.
- - - - - - - - - - - - Model - - - - - - - - - (4.1)
(4.2)
(4.3)
(4.4)
Intercept
-6.55***
(2.26)
-9.84**
(3.57)
-7.28***
(1.92)
-6.63***
(1.71)
Openness
-0.015**
(0.006)
-0.017**
(0.007)
-0.014**
(0.006)
-0.015**
(0.006)
Development
1.66***
(0.37)
1.86***
(0.42)
1.66***
(0.35)
1.91***
(0.33)
Growth
0.035*
(0.018)
0.053*
(0.029)
0.038*
(0.019)
0.037*
(0.019)
Land
-0.412***
(0.131)
-0.353***
(0.117)
-0.352**
(0.144)
-0.404***
(0.120)
Lagged Environmental
Governance
0.682***
(0.057)
0.699***
(0.058)
0.678***
(0.059)
0.681***
(0.057)
GDP
4.01  10-13
(1.47  10-12)
Variable
____
____
____
____
____
Government Spending
____
0.037
(0.026)
Oil
____
____
-0.283
(0.297)
____
FDI
____
____
____
-0.012
(0.026)
N
R2
94
67
0.85
0.88
43
94
0.85
94
0.85
- - - - - - - - - - - - Model - - - - - - - - - (4.6)
(4.7)
Variable
(4.5)
Intercept
-7.02***
(1.65)
-6.95***
(2.34)
-6.96***
(1.89)
-6.79***
(1.79)
Openness
-0.015**
(0.006)
-0.015**
(0.006)
-0.015**
(0.006)
-0.015**
(0.006)
Development
1.68***
(0.34)
1.69***
(0.40)
1.70***
(0.35)
1.70***
(0.36)
Growth
0.035*
(0.019)
0.035*
(0.018)
0.037
(0.023)
0.037
(0.022)
Land
-0.389**
(0.150)
-0.403***
(0.124)
-0.406***
(0.123)
-0.415***
(0.131)
Lagged Environmental
Governance
0.680***
(0.054)
0.682***
(0.057)
0.686***
(0.062)
0.681***
(0.056)
Population Density
0.001
(0.003)
Miles from Vienna
____
SO2 per km (1990)
____
NOx per km (1990)
____
N
R2
____
____
____
____
____
____
0.032
(0.133)
____
____
____
0.045
(0.231)
1.83  10-5
(1.32  10-4)
94
94
0.85
(4.8)
0.85
91
0.85
91
0.85
Note: Entries are feasible generalized least squares estimates with robust (Huber) standard errors
in parentheses. For presentational purposes, each estimate except that of Lagged Environmental
Governance is multiplied by 1,000,000.
*** p < .01; ** p < .05; * p < .10. Two-tailed tests of statistical significance are conducted for all
estimates.
44
Figure 1. Mean Annual Environmental Fund Expenditures.
CzechR.
Poland
Slovenia
Hungary
SlovakR.
Estonia
Belarus
Bulgaria
Latvia
Kazakhstan
Ukraine
Lithuania
Russia
KyrgyzR.
Moldova
Azerbaijan
Uzbekistan
Turkmenistan
$0.00
$2.00
$4.00
$6.00
US$ per capita
45
$8.00
$10.00
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