Environmentalism and the national economies: theories and evidence, 1980-2000

Environmentalism and the National Economies: Theories and Evidence, 1980-2000

Evan Schofer Dept. of Sociology University of Minnesota

Francisco J. Granados Dept. of Sociology University of Minnesota

May 2003 Word Count: 11,700

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The authors equally contributed to this paper. Direct correspondence to Francisco J. Granados or EvanSchofer, Department of Sociology, University of Minnesota, 909 Social Sciences, 267 19th Avenue South, Minneapolis, MN 55455. (granados@socsci.umn.edu; schofer@soc.umn.edu). This project was funded by a University of Minnesota GRPP grant.

Environmental Policies and the National Economies: Theories and Evidence, 1980-2000 Abstract We discuss the relationship between environmental policies and nationaleconomic activity. The most common view is that environmentalism harms economies, either by imposing costs on industry or by causing investment to flee to countries with less stringent environmental standards. We develop alternative arguments, rooted in several sociological perspectives, which predict positive economic effects via increases in investment and efficiency, world-systems processes,or as a consequence of the global diffusion of environmentalism. This paper examines these issues in a cross-national context: do environmental policies and activities affect economic growth, industry, trade, and investment? The results of the analyses indicate that pro-environmental countries experienced greater economic growth over the period 1980-2000 – a finding contrary to common expectations.This pattern holds also when less developed countries are analyzed separately. We also observe positive effects of environmentalism on investment and the size of the industrial and service sectors. Effects of environmentalism on foreign investment and trade are not significant, indicating that environmental policies do not produce investment flight or negative trade balances. We discussimplications for theories and suggest directions for future research.

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Introduction

Environmental policies are often resisted on the grounds that they will provoke adverse economic effects. Environmental protection typically involves regulation that increases the costs of production or limits the exploitation of natural resources. Pollution abatement requirements can make an old plant too costlyto run, while endangered species laws can shut down logging in an entire region. Thus, it is commonly perceived that environmentalism will cost jobs and harm the local, regional, and/or national economy. Recent trends toward economic globalization have only heightened such fears, as firms can more easily move investment and production to other countries should local environmental regulationsbecome too onerous (Cobb and Daly 1989; Hansen-Kuhn 1993; Keohane and Milner 1996; Korten 1993; Thrupp 1994). The immediate costs of environmentalism may be significant, but they are only part of the story. We draw on ideas from organizational sociology, world-systems theory, neo-institutionalism, and economic sociology to consider the broader consequences of environmentalism. These perspectivessuggest more complex and longer-term consequences that may generate economic rewards for pro-environmental firms and countries. For instance, environmentalism creates demand for new kinds of products, production methods, and even entire new industries (such as recycling or remediation services). We also consider implications of recent organizational and neo-institutional literature on environmentalism(Frank 1997; Frank et al. 2000; Hoffman 1997; Hoffman and Ventresca 2002; Meyer et al. 1997). We argue that global institutionalization of environmentalism may reduce comparative advantages of polluters and, over the long

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term, reconstruct economic value, creating economic benefits for pro-environmental countries. First, we summarize arguments and research about the economic costs of...