growing rich.pdf

7/29/2019 Growing rich.pdf

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Grow Rich and Clean Up Later? Joint Effects of

International Integration and Democracy on

Environmental Quality in Developing Countries1

Gabriele Ruoff

August 21, 2009

1For detailed suggestions and comments, I thank Thomas Bernauer, Anna Kalb-henn, Erik Gartzke, Simon Hug, Vally Koubi, Lena Schaffer, Cornelia Schmidt andVera Troger. For their help concerning the formal model I thank Donja Darai, Har-ris Dellas, Thorsten Ehlers and Christian Heppenstrick. This thesis was writtenin the context of the Swiss National Research Program on Democracy in the 21stCentury.


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Abstract

Many forms of environmental degradation first increase, then level off anddecrease as national income grows. Does this mean that poorer countrieshave to grow rich before they can improve their environmental performance?This thesis argues that integration into the international system in combi-nation with democratic forms of government mitigates this dilemma. Thisargument is tested on panel data for 115 developing countries in 1970-2000.The thesis examines whether enlarging the scope of international integra-

tion to encompass membership in international governmental organizations(IGOs), international aid, trade openness and FDI inflows adds to our un-derstanding of developing countries environmental performance.

The empirical analysis shows that membership in IGOs is the only aspectof globalization that is robustly associated to a reduction in air and waterpollution. Furthermore, whereas the type of the political system does notappear to directly affect developing countries environmental performance, itstrongly mediates the effect of international integration. For IGO member-ship we see that democracy seems to amplify the positive integration effectwith respect to SO2 emissions but dampens the effect for CO2 emissions andwater pollution. Concerning trade openness and foreign direct investment,

the results show that at any given level of trade openness or FDI, air pollu-tion emissions are higher in autocratic developing countries than democraticdeveloping countries.

To better understand the mechanisms underlying the robust effect ofIGO membership, four case studies illustrate how the mandate and objec-tives of IGOs can increase the environmental performance of developingcountries. The analysis of Cameroon, India, Laos and Lithuanias IGOmemberships points to three main mechanisms through which IGOs seemto influence a countrys environmental performance: issue linkage, technicalcooperation and know-how diffusion, and pushing the topic of environmentalprotection or sustainable development on the agenda of developing countries.

Relying on a specific-factors trade model, one of these mechanisms, thetransfer of technologies, is then taken up to build a simple formal theoreti-cal model that links IGO membership to environmental pollution. ModelingIGO membership as a trade-off between selling ones exports at better con-ditions but using a more environmentally stringent technology, the resultsshow that for a reasonable setting of the model parameters, both democraticand autocratic forms of government opt for at least some IGO membership,thus making production more environmentally friendly.


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Contents

1 Introduction 11

2 Literature Review 19

2.1 Literature on environmental quality: the Environmental KuznetsCurve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.2 Enlarging the Scope Step 1: Environmental Quality and thePolitical System . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2.3 Enlarging the Scope Step 2: Environmental Quality and Glob-alization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252.3.1 International Governmental Organizations . . . . . . . 262.3.2 International Aid . . . . . . . . . . . . . . . . . . . . . 302.3.3 Economic Integration: Trade and Foreign Direct In-

vestment . . . . . . . . . . . . . . . . . . . . . . . . . 332.3.3.1 Trade . . . . . . . . . . . . . . . . . . . . . . 352.3.3.2 Foreign Direct Investment . . . . . . . . . . . 37

2.3.3.2.1 Competition for FDI . . . . . . . . 372.3.3.2.2 Effects on the Environment . . . . . 39

2.4 The Political System and International Integration . . . . . . 412.4.1 The Political System and International Government

Organizations . . . . . . . . . . . . . . . . . . . . . . . 422.4.2 The Political System and International Aid . . . . . . 432.4.3 The Political System and Trade . . . . . . . . . . . . . 442.4.4 The Political System and Foreign Direct Investment . 44

2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3 Theory 48

3.1 Income and Environmental Quality . . . . . . . . . . . . . . . 493.2 No Independent Effect of Political System . . . . . . . . . . . 503.3 International Integration . . . . . . . . . . . . . . . . . . . . . 52

3.3.1 Membership in International Organizations . . . . . . 523.3.2 International Assistance . . . . . . . . . . . . . . . . . 543.3.3 Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 563.3.4 FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

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CONTENTS

3.4 Interconnection with the Political System . . . . . . . . . . . 60

3.4.1 The Political System and the Response to Interna-tional Integration . . . . . . . . . . . . . . . . . . . . . 61

3.4.2 The Political System and the Degree of InternationalIntegration . . . . . . . . . . . . . . . . . . . . . . . . 63

4 Research Design 67

4.1 General Research Strategy . . . . . . . . . . . . . . . . . . . . 674.2 Sample Selection . . . . . . . . . . . . . . . . . . . . . . . . . 684.3 Estimation Method . . . . . . . . . . . . . . . . . . . . . . . . 694.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

4.4.1 Dependent Variable . . . . . . . . . . . . . . . . . . . 73

4.4.1.1 SO2 . . . . . . . . . . . . . . . . . . . . . . . 744.4.1.2 CO2 . . . . . . . . . . . . . . . . . . . . . . . 754.4.1.3 BOD . . . . . . . . . . . . . . . . . . . . . . 75

4.4.2 Independent Variables . . . . . . . . . . . . . . . . . . 764.4.2.1 International Governmental Organizations . 764.4.2.2 International Aid . . . . . . . . . . . . . . . 794.4.2.3 Trade . . . . . . . . . . . . . . . . . . . . . . 794.4.2.4 Foreign Direct Investment . . . . . . . . . . . 804.4.2.5 Political System . . . . . . . . . . . . . . . . 804.4.2.6 National Income . . . . . . . . . . . . . . . . 81

4.4.3 Control Variables . . . . . . . . . . . . . . . . . . . . . 83

4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

5 General Results 85

5.1 Results Standard Model: Independent Effect of InternationalIntegration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

5.2 Analyzing the Mediating Effect of the Political System . . . . 925.2.1 Indirect Effect of the Political System through Inter-

national Integration . . . . . . . . . . . . . . . . . . . 925.2.2 Interaction between IGO Membership and Political

System . . . . . . . . . . . . . . . . . . . . . . . . . . 945.2.3 Interaction between Aid and Political System . . . . . 98

5.2.4 Interaction between Trade and Political System . . . . 1015.2.5 Interaction between FDI and Political System . . . . . 105

5.3 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . 1085.3.1 Evaluating the Effect of Democracy: Regime Change

and the Effect of Democracy . . . . . . . . . . . . . . 1085.3.2 Robustness Checks with regard to Model Specification 1115.3.3 Robustness Checks with regard to Estimation Method 116

5.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

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CONTENTS

6 IGO Membership and Environmental Quality: Understand-

ing the Mechanisms 1226.1 Evaluating the Robustness of IGO Membership . . . . . . . . 123

6.1.1 Accounting for the Stringency of IGO Membership . . 1236.1.2 Accounting for the Trend in IGO Membership . . . . 125

6.2 Disaggregating the Effect of IGO Membership . . . . . . . . . 1276.2.1 Disaggregating IGO Membership according to its Func-

tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1276.2.2 Disaggregating IGO Membership according to its De-

gree of Institutionalization . . . . . . . . . . . . . . . . 1416.3 Endogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1446.4 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

6.4.1 State of the Environment . . . . . . . . . . . . . . . . 1516.4.2 Common IGO Membership . . . . . . . . . . . . . . . 1566.4.3 Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . 1686.4.4 India . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1696.4.5 Laos . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 716.4.6 Lithuania . . . . . . . . . . . . . . . . . . . . . . . . . 1 72

6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

7 Formal Model on IGO Membership and Environmental Qual-

ity 178

7.1 The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

7.2 Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 807.2.1 Government Favors Elite Member in the Export Sector 1837.2.2 Government Favors Elite Member in the Domestic

Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . 1937.2.3 Government Favors Representative Voter (Worker) in

the Export Sector . . . . . . . . . . . . . . . . . . . . 2017.2.4 Government Favors Representative Voter (Worker) in

the Domestic Sector . . . . . . . . . . . . . . . . . . . 2087.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

8 Conclusion 216

9 Appendix 225

9.1 Additional Information Chapter 4 . . . . . . . . . . . . . . 2259.2 Additional Tables and Figures Chapter 5 . . . . . . . . . . 2319.3 Additional Information Chapter 7 . . . . . . . . . . . . . . 236

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List of Tables

4.1 Variables and their variation sample: all developing countries 73

4.2 Theoretical concepts and their operationalization . . . . . . . 82

5.1 Descriptive statistics sample: all developing countries . . . 865.2 Baseline model sample: all developing countries . . . . . . . 885.3 Baseline model: BOD only sample: low- and low-middle

income countries . . . . . . . . . . . . . . . . . . . . . . . . . 895.4 Baseline model: ACLP democracy variable sample: all de-

veloping countries . . . . . . . . . . . . . . . . . . . . . . . . 915.5 Effect of political system on international integration sam-

ple: all developing countries . . . . . . . . . . . . . . . . . . . 935.6 Interaction between IGO membership and political system

sample: all developing countries . . . . . . . . . . . . . . . . . 955.7 Interaction between aid and political system sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 995.8 Interaction between trade and political system sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 1025.9 Interaction between FDI and political system sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 1065.10 Regime change and the effect of democracy sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 1105.11 Regions sample: all developing countries . . . . . . . . . . . 1125.12 Urban population and agricultural land area sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 1135.13 Number of cars and industry shares sample: all developing

countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1145.14 Government share of GDP sample: all developing countries 1155.15 Baseline results with a lagged dependent variable sample:

all developing countries . . . . . . . . . . . . . . . . . . . . . 1175.16 Regression with both time and country fixed effects sample:

all developing countries . . . . . . . . . . . . . . . . . . . . . 1185.17 Regression with decade dummies and country fixed effects

sample: all developing countries . . . . . . . . . . . . . . . . . 119

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LIST OF TABLES

6.1 Varying the stringency of the IGO variable sample: all de-

veloping countries . . . . . . . . . . . . . . . . . . . . . . . . 1246.2 IGO membership in deviations from the mean sample: all

developing countries . . . . . . . . . . . . . . . . . . . . . . . 1266.3 IGO membership disaggregated according to IGO function

sample: all developing countries . . . . . . . . . . . . . . . . . 1286.4 IGO membership in % of possible IGO membership sample:

all developing countries . . . . . . . . . . . . . . . . . . . . . 1346.5 Military Organizations . . . . . . . . . . . . . . . . . . . . . . 1386.6 Military Organizations . . . . . . . . . . . . . . . . . . . . . . 1396.7 IGO membership disaggregated according to whether the IGO

has some environmental function sample: all developing

countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1416.8 IGO membership disaggregated according to the degree of

institutionalization sample: all developing countries . . . . 1436.9 Testing potential instrumental variables sample: all devel-

oping countries . . . . . . . . . . . . . . . . . . . . . . . . . . 1456.10 Regression instrumenting IGO membership sample: all de-

veloping countries . . . . . . . . . . . . . . . . . . . . . . . . 1486.11 Regression instrumenting environmental IGO membership

sample: all developing countries . . . . . . . . . . . . . . . . . 1496.12 Membership in environmental IGOs . . . . . . . . . . . . . . 1666.13 Membership in environmental treaties . . . . . . . . . . . . . 167

7.1 Starting values for the baseline simulation . . . . . . . . . . . 187

9.1 Time periods for countries SO2 and CO2 . . . . . . . . . . . 2259.2 Time periods for countries SO2 and CO2 . . . . . . . . . . . 2269.3 Time periods for countries SO2 and CO2 . . . . . . . . . . . 2279.4 Additional countries and time periods CO2 . . . . . . . . . 2279.5 Time periods for countries BOD . . . . . . . . . . . . . . . 2289.6 Time periods for countries BOD . . . . . . . . . . . . . . . 2299.7 Time periods for countries BOD . . . . . . . . . . . . . . . 2309.8 Interaction between IGO membership and political system

sample: low-income countries . . . . . . . . . . . . . . . . . . 2319.9 Interaction between aid (divided by GDP) and political sys-tem sample: all developing countries . . . . . . . . . . . . . 232

9.10 Interaction between log of export divided by GDP and polit-ical system sample: all developing countries . . . . . . . . . 234

9.11 Gravity model including joint IGO membership . . . . . . . . 238

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List of Figures

1.1 Relationship between GDP per capita and SO2 emissions in

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.1 Illustration of theoretical argument . . . . . . . . . . . . . . . 49

5.1 Marginal effect of IGO membership SO2 . . . . . . . . . . . 965.2 Marginal effect of IGO membership CO2 . . . . . . . . . . . 965.3 Marginal effect of IGO membership BOD . . . . . . . . . . 965.4 Marginal effect of IGO membership BOD . . . . . . . . . . 975.5 Marginal effect of aid SO2 . . . . . . . . . . . . . . . . . . . 1005.6 Marginal effect of aid CO2 . . . . . . . . . . . . . . . . . . . 1005.7 Marginal effect of aid BOD . . . . . . . . . . . . . . . . . . 1005.8 Marginal effect of trade openness SO2 . . . . . . . . . . . . 103

5.9 Marginal effect of trade openness CO2 . . . . . . . . . . . . 1035.10 Marginal effect of trade openness BOD . . . . . . . . . . . . 1035.11 Marginal effect of trade openness SO2 . . . . . . . . . . . . 1045.12 Marginal effect of trade openness CO2 . . . . . . . . . . . . 1045.13 Marginal effect of FDI SO2 . . . . . . . . . . . . . . . . . . 1 055.14 Marginal effect of FDI CO2 . . . . . . . . . . . . . . . . . . 1 075.15 Marginal effect of FDI BOD . . . . . . . . . . . . . . . . . . 1075.16 Marginal effect of FDI BOD . . . . . . . . . . . . . . . . . . 107

6.1 Marginal effect of IGO membership according to its function SO2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

6.2 Marginal effect of IGO membership according to its function CO2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

6.3 Marginal effect of IGO membership according to its function BOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

6.4 Marginal effect of % of IGO membership according to its func-tion SO2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

6.5 Marginal effect of % of IGO membership according to its func-tion CO2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

6.6 Marginal effect of % of IGO membership according to its func-tion BOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

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LIST OF FIGURES

6.7 State of the environment: Cameroon . . . . . . . . . . . . . . 152

6.8 State of the environment: India . . . . . . . . . . . . . . . . . 1536.9 State of the environment: Laos . . . . . . . . . . . . . . . . . 1546.10 State of the environment: Lithuania . . . . . . . . . . . . . . 1556.11 IGO membership by country and over time . . . . . . . . . . 158

7.1 Optimal IGO membership at different levels of technology A 1887.2 Optimal IGO membership at different levels of Ky

Kx. . . . . . 1 8 9

7.3 Optimal IGO membership with varying price of export good px1917.4 Optimal IGO membership with varying share of value added

that goes to workers . . . . . . . . . . . . . . . . . . . . . . 1 927.5 Optimal IGO membership at different levels of technology A 197

7.6 Optimal IGO membership at different levels ofKxKy . . . . . . 1 9 8


that goes to workers . . . . . . . . . . . . . . . . . . . . . . 2 007.9 Optimal IGO membership at different levels of technology A 2047.10 Optimal IGO membership at different levels of Ky

Kx. . . . . . 2 0 5


that goes to workers . . . . . . . . . . . . . . . . . . . . . . 2 077.13 Optimal IGO membership at different levels of technology A 2107.14 Optimal IGO membership at different levels of Ky

Kx. . . . . . 2 1 1


that goes to workers . . . . . . . . . . . . . . . . . . . . . . 2 13

8.1 Environmental quality and GDP per capita (year 2000) . . . 2178.2 The effect of GDP on SO2 at various levels of IGO membership224

9.1 Marginal effect of aid scaled by GDP SO2 . . . . . . . . . . 2339.2 Marginal effect of aid scaled by GDP CO2 . . . . . . . . . . 2339.3 Marginal effect of aid scaled by GDP BOD . . . . . . . . . 2339.4 Marginal effect of export divided by GDP SO2 . . . . . . . 2 359.5 Marginal effect of export divided by GDP CO2 . . . . . . . 2 35

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List of Abbreviations

AARDO Afro-Asian Rural Development Organization

ASEAN Association of Southeast Asian Nations

ATO African Timber Organization

BC Baltic Council

BEF Baltic Environmental Forum

BIONET Global Network for Biosystematics

BOD Biological Oxygen Demand

CBD Convention on Biological Diversity

CENTO Central Treaty Organization

CFC Chlorofluorocarbons

CO2 Carbon Dioxide

COW Correlates of War

EAPC Euro-Atlantic Partnership Council

EBRD European Bank for Reconstruction and Development

ECCAS Economic Community of Central African States

EKC Environmental Kuznets Curve

EU European Union

FAO Food and Agriculture Organization

FDI Foreign Direct Investment

GATT General Agreement on Tariffs and Trade

GDP Gross Domestic Product

GEF Global Environment Facility

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LIST OF FIGURES

IADefB Inter-American Defense Board

IAEA International Atomic Energy Agency

IBRD International Bank for Reconstruction and Development

ICivDO International Civil Defence Organization

ICSG International Copper Study Group

IDA International Development Association

IFAD International Fund for Agriculture and Development

IFC International Finance Corporation

IGO International Governmental Organization

IIR International Institute of Refrigeration

ILO International Labour Organization

IMF International Monetary Fund

IMO International Maritime Organization

IV Instrumental Variable

MEA Multilateral Environmental Agreement

MNC Multinational Corporation

NAM Non-Aligned Movement

NATO North Atlantic Treaty Organization

NGO Non-Governmental Organization

ODS Ozone-Depleting Substances

OECD Organisation for Economic Co-operation and Development

OLADE Latin American Energy Organization

OLS Ordinary Least Squares

OSCE Organization Security Cooperation Europe

PCSE Panel Correct Standard Errors

PPP Purchasing Power Parity

SAARC South Asian Association for Regional Cooperation

SEAMEO Southeast Asian Ministers of Education Organization

SEATO Southeast Asia Treaty Organization

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LIST OF FIGURES

SO2 Sulfur Dioxide

TSCS Time-Series Cross-Section

UN United Nations

UNCCD UN Convention to Combat Desertification

UNEP United Nations Environment Programme

UNESCO United Nations Educational, Scientific and CulturalOrganization

UNFCCC United Nations Framework Convention on Climate Change

UNIDO UN Industrial Development Organization

US United States

VASAB Vision and Strategies around the Baltic Sea

WHO World Health Organization

WMO World Meteorological Organization

WTO World Trade Organization

WWF World Wide Fund For Nature

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Chapter 1

Introduction

Does integration into the international system help developing countriesprovide public goods? The importance of this question lies in the fact thatpoverty or low national income are often associated with low levels of publicgoods provision, for example in areas such as health care, education orenvironmental sustainability. Wealthy nations, in contrast, are characterizedby higher life expectancy, lower illiteracy rates1, superior environmentalperformance2, and other conditions that the Millennium Assessment Process(UN 2009a) and policy-makers worldwide regard as highly desirable.

This thesis concentrates on one important type of public good, namelyenvironmental quality. The theoretical and empirical literature on the re-

lationship between income and environmental degradation indicates thatmany forms of pollution tend to rise monotonically with growing income(Grossman & Krueger 1995). However, after a certain income threshold isreached, some pollutants tend to level off and decline. Typical examplesinclude air and water pollution. This non-linear inverted U-shaped relation-ship is known as the Environmental Kuznets Curve (EKC) (Grossman &Krueger 1995; Selden & Song 1994). According to the logic of the EKC, anincrease in national income should be associated with better environmentalquality in industrialized countries whereas developing countries should beconfronted with deteriorating environmental quality when their GDP percapita grows.

Does this regularity imply that poor countries need to become rich inorder to be able to offer high levels of environmental public goods to their

1For a ranking of countries by life expectancy and illiteracy rates, see for example theHuman Development Index (UNDP 2009).

2The Environmental Performance Index (Center for International Earth Science Infor-mation Network (CIESIN) 2002) shows that the average sustainability score of high-incomecountries is higher compared to those of middle- or low-income countries. This finding,however, should not obscure the fact that there is strong variation within income brackets:some high-income countries exhibit poor environmental performance and some low-incomecountries high environmental performance.

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CHAPTER 1. INTRODUCTION

population? As shown in Figure 1, the empirical pattern between environ-

mental degradation (shown here in terms of local air pollution in particularsulfur-dioxide (SO2) emissions for all developing countries in the year 2000)and GDP per capita suggests that this may not be the case. The wide vari-ation in pollution levels around the regression line indicates that nationalincome is not as decisive for national environmental quality as the literatureon the EKC suggests.

Figure 1.1: Relationship between GDP per capita and SO2 emissions in 2000

Although several countries seem to fit the EKC pattern, like India or

Sri Lanka which both show increasing income together with increasing pol-lution levels, many other countries do not. When we look at Albania orLithuania, for example, we observe, even long after the collapse of com-munism, a strong rise in environmental quality. This is especially strikingbecause the national income of both countries has increased at the sametime. According to the EKC, this increase in income should have implied adecline in environmental quality because both Albania and Lithuania, likeall developing countries, are still situated on the upward sloping part of theEnvironmental Kuznets Curve for which increases in national income areassociated with decreases in environmental quality. In contrast, in the caseof Ecuador or Ivory Coast, environmental quality has worsened while at the

same time their national income has stagnated or even declined. Finally, wealso observe cases in which there is no obvious relationship between GDPper capita and environmental quality at all, as for example in Cameroon orthe Philippines.

Positive or negative deviations from the EKC for any given number ofcountries and environmental quality measures can in principle be due to avariety of factors. The scholarly literature pays considerable attention tothe effects of democracy and economic openness to explain variations inenvironmental quality at any given level of income (Antweiler et al. 2001;Neumayer 2002b; Ward 2008; Baettig & Bernauer 2009). This thesis adds

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These four aspects of international integration membership in IGOs,

international aid, trade openness and FDI were chosen for several reasons.First, they cover the most important angles of globalization comprising thewhole spectrum from political towards economic international integration.Second, all of these four aspects are well researched in the literature whilethe relationship between these facets of international integration and envi-ronmental quality has only been analyzed with regard to trade openness andforeign direct investment. Third, these aspects of globalization take placein a structured and institutionalized setting that is geared towards long-term interaction. Hence these facets of international integration describerepeated interactions, making it possible to analyze how they affect envi-ronmental quality, a public good whose provision is often characterized by its

long-term nature5. Fourth, with respect to all four aspects of globalization,governments are important driving forces behind the extent of a countrysintensity of international integration by either making the decisions to joina particular IGO, by setting appropriate regulations to attract foreign in-vestment and trade flows or by being the executing agency for developmentaid. Hence analyzing the interaction between a countrys political systemand any of the four forms of international integration, which constitutes thesecond major contribution of this thesis, is in all of these four instances ameaningful endeavor.

Concerning the interaction between international integration and the po-litical system, I argue that the type of the political system should not have

an independent effect on environmental quality in developing countries, butits interplay with international integration should be decisive for improvedenvironmental quality. More specifically, I posit that the hypothesized pos-itive effect of international integration is intensified in democratic politicalsystems, suggesting that at any given level of international integration envi-ronmental quality will be better in democracies relative to autocracies. Thisimplies that the political system does not affect the environmental perfor-mance of developing countries directly but only through the indirect link viainternational integration.

I empirically test the propositions of the theoretical arguments with atime-series cross-section analysis of 115 developing countries from 1970 to

2000. To proxy environmental quality I rely on three different measures ofenvironmental degradation, which are sulfur dioxide (SO2) and carbon diox-ide (CO2) emissions measuring air quality, and biological oxygen demand

tional integration defined more broadly by including different facets of globalization alters countries environmental performance.

5This is one important reason why only membership in IGOs and not membership ininternational treaties such as environmental treaties is considered in this analysis. Al-though some of these treaties lead to repeated interaction even after ratification, sometreaties do not extend into member countries domestic actions later on at all, renderingtheir analysis unsuitable for the setting at hand.

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(BOD) measuring water quality. These three indicators cover important as-

pects of a countrys environmental performance, thus giving a broad pictureof environmental quality. After analyzing the effect of IGO membership,international aid, trade openness and foreign investment and their interplaywith the political system on the environmental performance of developingcountries, this thesis focuses on one specific factor of international integra-tion, which is membership in IGOs. Since this is the only factor of interna-tional integration that is robustly associated to an increase in environmentalquality, I strive to understand more fully the mechanisms that are behindthese findings. To this end further time-series cross-country analyses areemployed using a more refined coding of IGO membership. Moreover, thisdetailed quantitative analysis of IGO membership on environmental quality

is further complemented by four illustrative case studies. These case studiesare conducted to assess in more detail which of the mechanisms proposedin the theoretical section are indeed underlying the aggregate relationshipbetween IGO membership and environmental quality that come out of thestatistical analysis. Therefore, the main goal of these case studies is to eval-uate and illustrate which of the theoretically proposed links are empiricallyat play in the everyday business of IGOs in developing countries.

One mechanism, the diffusion of technology, which is highlighted by boththe statistical as well as the case study analysis as being one driving forcebehind the influence of IGO membership, is then taken up in the last partof the thesis to develop a simple formal theoretical model that links IGO

membership to environmental pollution. The aim of this model is to obtaina more general theoretical framework for the study of IGO membership andits links to environmental pollution. Using a specific-factors trade model,this theoretical framework conceives of IGO membership as a trade-off foreach country between being able to sell ones exports at better conditions butusing a more environmentally stringent technology, thus making productionmore costly. The results of the model show that for a reasonable setting ofthe parameters in the model all types of government both democratic aswell as autocratic opt for at least some IGO membership, thus makingproduction more environmentally friendly.

The results that come out of this mixed methods approach show a di-

verse picture of environmental quality in developing countries. As pointedout above, the only factor that is robustly associated to a decrease in all threeforms of environmental pollution is IGO membership. Trade openness onlysignificantly influences CO2 emissions; however, it leads to an increase inemissions and not to a decrease as was theoretically expected. Internationalaid is in none of the models significantly associated to environmental pollu-tion. Similarly, with the exception of water quality in low-income countries,FDI is not significantly associated with any of the three indicators of envi-ronmental quality, as well. As hypothesized, political regime type does nothave an independent effect on environmental quality in developing countries;

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however, it strongly mediates the effect of the four aspects of international

integration. With regard to IGO membership and in line with the theo-retical arguments, democracy amplifies the positive integration effect withrespect to SO2 emissions, but contrary to theoretical predictions democ-racy dampens the effect with respect to CO2 emissions and water pollution.Turning to trade openness and FDI, for both SO2 and CO2 emissions theincreasing effect on pollution levels is more pronounced in autocracies thanin democracies. This implies that at any given level of trade openness orforeign investment, pollution emissions are higher in autocratic developingcountries compared to democratic developing countries. Concerning inter-national aid, there is no systematic pattern of aid and the political systemon a countrys environmental performance.

The more detailed analysis of IGO membership that follows the aggre-gate statistical analysis shows that the positive impact of IGO membershipon environmental quality is robust to various measurement specifications.Furthermore, when disaggregating IGO membership according to the func-tion and the degree of institutionalization of the organization, we get somevery interesting findings. First, we see that it is not membership in environ-mental IGOs that is driving the results. This result affirms our conclusionthat IGO membership is not endogenous to environmental quality and thattherefore the causality indeed runs in the expected direction6. In contrast, itis membership in umbrella, nuclear, agricultural, economic standardizationand military organizations that is positively associated to an increase in en-

vironmental quality. Second, these findings provide us with a first indicationof the mechanisms behind this influence of IGO membership. For example,the influence of umbrella organizations such as the European Union (EU)or the Association of Southeast Asian Nations (ASEAN) is a first indica-tion that some IGOs seem to be very successful in connecting different issues.Although environmental protection is usually not the main goal of these um-brella organizations, countries joining these IGOs for economic or politicalreasons are as a side effect also influenced with regard to their environmen-tal quality. In contrast, the influence of agricultural, economic and nuclearorganizations rather seems to be grounded in the provision of technologicaland financial resources, thus increasing the capacity of developing countries

to provide environmental quality.These findings are clearly supported by the four illustrative case studies

on how IGOs influence environmental quality in Cameroon, India, Laos andLithuania. When evaluating the mandate of the various organizations towhich these four countries belong, three main mechanisms become apparentthrough which IGOs seem to influence a countrys environmental perfor-

6This conclusion is further supported by an instrumental variables regression showingthat even if we instrument IGO membership we obtain this positive and significant effecton environmental quality.

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mance: issue linkage, technical cooperation and know-how diffusion, and

pushing the topic of environmental protection or sustainable developmenton the agenda of developing countries.

Concerning the first issue we see that umbrella organizations such as theEU or ASEAN can be very successful in linking topics such as environmentalor labor protection to trade or other economic issues. This seems to workespecially well in those cases in which the organization possesses enoughpower to coerce its future member countries, as is the case with the EU orASEAN. Both Laos and Lithuania are examples of countries that adoptedextensive environmental regulations in order to become members of ASEANor the EU respectively.

With regard to the second issue, it becomes apparent from the case stud-

ies that many organizations such as the FAO, WHO, the World TourismOrganization or UNESCO provide developing countries with knowledge andtechnology needed to combat environmental pollution. This capacity build-ing by transferring technology and diffusing environmentally sound know-how is even seen by organizations such as the Global Environment Facility(GEF) as one of the most important strategies to deal with environmentalthreats such as climate change (GEF 2008b).

Finally, the four cases show that an increasing number of IGOs havetaken up the course of sustainable development. Although not all of theseorganizations do indeed provide developing countries with technologies andresources necessary to achieve sustainable development, countries can hardly

avoid this topic any more. This trend is also becoming evident in the lendingbehavior of the major development aid actors such as the World Bank. Forexample, countries applying for loans with the International DevelopmentAssociation (IDA), which is the part of the World Bank that provides loansto the poorest developing countries, are obliged to provide a National En-vironmental Action Plan, which outlines a countrys major environmentalproblems and describes solutions to mitigate these problems (Gutner 2005).

These last two mechanisms further hint at a major difference betweendemocracies and autocracies: both the promotion of sustainable develop-ment as well as the diffusion and transfer of technology appear to thrivemore intensively within democracies than within autocracies. This could

also be one explanation of why we see that most of the time the effect ofthe four aspects of international integration are more conducive to environ-mental quality in democracies than in autocracies. In contrast, the firstmechanism, which refers to issue linkage, seems to work equally well fordemocracies and autocracies. As long as the incentives are strong enoughto join these rather coercive organizations, even autocracies such as Laosagree to implement environmental regulations although their major interestin joining an organization such as ASEAN are clearly economic in nature.

The empirical and theoretical implications of this thesis for the study ofpublic goods provision are twofold: first, contrary to the results of previous

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studies, I do not find a direct effect of the type of the political system

on developing countries environmental performance. The political systemappears to become important only in its interplay with the internationalsystem in that it mediates the positive effect of international integration onenvironmental quality.

Second, the findings suggest that it is crucial not to limit internationalintegration to one aspect such as trade openness alone but to include vari-ous aspects of the international system such that a more complete pictureof how globalization affects environmental quality arises. This is especiallyimportant because, as the analysis shows, out of the four facets of interna-tional integration analyzed in this thesis only IGO membership is alwaysassociated to increases in environmental quality. These results also warn us

from drawing too optimistic a picture of foreign investment and trade flows:whereas the study does not provide any evidence in favor of the pollutionhaven argument, the positive perspective on trade and FDI as facilitators oftechnology transfer does not seem to hold either. Similarly, with regard todevelopment aid the results suggest that the positive effects arising from thepromotion of sustainable development and the provision of environmentallysound technology are outweighed by the aid induced economic growth.

Overall, however, the study also allows for some positive conclusions forthe study of public goods provision since IGO membership provides devel-oping countries with a channel through which they can tackle their envi-ronmental problems already at their current low national income. Hence

developing countries do not need to grow rich before they can combat envi-ronmental pollution.

This thesis is structured as follows: The next chapter gives a detailedoverview of the various strands of literature important for the topics of inter-national integration, the political system and the provision of environmentalquality. Chapter 3 develops the theoretical argument and outlines the hy-potheses to be tested. Chapter 4 describes the data and research methodsused. Chapter 5 presents the results of the main empirical analysis. This isfollowed in Chapter 6 by a detailed evaluation of the mechanisms underlyingIGO membership. Chapter 7 complements these findings by a formal modeldeveloped to generalize the argument of how IGO membership influences en-

vironmental quality in developing countries. Finally, Chapter 8 summarizesthe findings and discusses the theoretical and policy implications.

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Chapter 2

Literature Review

As the introductory section has shown, this thesis ties in with several dif-ferent strands of literature. A natural starting point for a literature review,however, are the many studies dealing with national income and the provi-sion of environmental quality. Building on these studies, I will then enlargethe scope of the relevant literature by reviewing research that analyzes howthe political system influences the provision of environmental quality. Sub-sequently, I will further expand the scope by presenting studies that dealwith any of the four aspects of international integration analyzed in thisthesis IGO membership, international aid, trade and foreign direct invest-ment. Finally, the literature is presented that connects these various forms

of international integration with a countrys political system.

2.1 Literature on environmental quality: the En-vironmental Kuznets Curve

Starting with Shafik & Bandyopadhyay (1992), Selden & Song (1994), Holtz-Eakin & Selden (1995) and Grossman & Krueger (1995, 1993) a vibrantliterature has evolved that deals with the question of how national incomeis related to a countrys environmental performance1. Most of these earlystudies empirically found an inverted U-shaped relationship between growing

GDP per capita and several indicators of environmental pollution. FollowingKuznets (1955), who proposed an inverted U-shaped relationship betweenthe level of income and income inequality, this environmental version of thecurve was labeled the Environmental Kuznets Curve (EKC).

The logic underlying the EKC is that in the course of a countrys eco-nomic development, rising national income increases the scale of economicactivity, which - all else being equal - leads to rising pollution levels (scaleeffect). However, after a certain threshold of national income has been

1If not indicated otherwise the studies under review follow a quantitative approach andrefer to all countries (developing and industrialized).

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CHAPTER 2. LITERATURE REVIEW

reached, pollution is supposed to decline due to two effects: first, the com-

position of the economy is likely to change from manufacturing to service(composition effect). Second, with rising national income, technologicalprogress tends to lead to less environmental pollution (technology effect).In addition, there is a political component to the EKC, which implies thatat early stages of economic development, environmental quality is generallyconsidered a luxury good and since states at this stage of economic devel-opment have only limited resources available, environmental performanceusually ranks far behind the demand for better economic conditions, forexample. However, once people attain a certain level of living standards,environmental quality turns into a normal public good and constituents de-mand that their government take actions to reduce or avoid pollution, for

example by enacting appropriate environmental regulations (Selden & Song1994).

The results of these early studies on the EKC somewhat qualified thehitherto negative perspective on income growth and environmental quality:

Contrary to the alarmist cries of some environmental groups, wefind no evidence that economic growth does unavoidable harm tothe natural habitat. Instead we find that while increases in GDPmay be associated with worsening environmental conditions invery poor countries, air and water quality appear to benefit fromeconomic growth once some critical level of income has been

reached (Grossman & Krueger 1995, 370).

Relying on the development trajectory proposed by the EKC, some stud-ies even went as far as to suggest that countries should simply grow rich andthen enact the appropriate policies to deal with environmental problems in-stead of trying to counteract increasing pollution in the course of economicdevelopment (Beckerman 1992). This recommendation, however, is not onlyproblematic as it absolves developing countries of their environmental re-sponsibilities during early phases of economic development but also becauselater and more sophisticated studies on the Environmental Kuznets Curvequalify earlier results on both empirical and on theoretical grounds.

Starting with theoretical improvements and criticisms of the EKC, somestudies provide formal theoretical models to explain the particular shapeof the EKC. Lopez (1994) or Selden & Song (1994), for example, modelthe relation between emissions and income using technology and consumerpreferences as the main parameters. In a more recent model by Andreoni& Levinson (1998), the inverted U-shaped relationship between income andpollution arises due to the technology that links consumption of a good toits polluting byproduct.

In addition to these studies that are intended to improve the theoreticalunderpinning of the EKC, some theoretical criticisms also exist (Stern 2004).

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First, the assumption underlying the EKC that economic growth will not be

affected by increasing environmental damage is challenged. Second, Stern(2004) suggests that although some pollutants may decrease with income,other pollutants will increase instead such that there will be a compositionchange in pollution without a real overall reduction in emissions.

Turning to those studies that improve the research on the EKC empiri-cally, Nordstroem & Vaughan (1999), for example, conclude that the EKConly holds for a very specific set of pollutants such as local air pollutantsor some water pollutants but not for global air pollutants such as carbondioxide (CO2). In contrast, an early study by Holtz-Eakin & Selden (1995)finds a diminishing marginal propensity of countries to emit CO2, whichwould be well in accordance with an Environmental Kuznets Curve. This

is supported by Lamla (2006) who finds evidence using a Bayesian averag-ing of classical estimates technique in favor of the EKC independent of thepollution proxy.

As a further advancement on statistical grounds, Millimet et al. (2003)propose a semi-parametric alternative to estimate the Environmental KuznetsCurve. They find that this semi-parametric specification yields even lowerturning points than the usual parametric approach, which consisted of us-ing GDP per capita and its squared (and often its cubed) term. This wouldimply that countries would reduce environmental pollution at lower levelsof national income than suggested previously. However, Stern (2004) arguesthat none of Millimet et al. (2003)s estimates seems to fit the data very

well, indicating a

fragility of the EKC rather than evidence for a low turning pointsemi-parametric specification (Stern 2004, 1430).

This fragility of the EKC is further supported by Hettige et al. (2000):using data on the water pollution intensity of different industry sectors, theyfind no evidence for an Environmental Kuznets Curve. Instead, they showthat pollution intensity increases until countries reach middle-income levelswhereupon pollution levels seem to stay constant. This is in line with Shen(2006) and Plassmann & Khanna (2006) who also find little evidence for the

inverted U-shaped relation between income and environmental degradation.Finally, recent evidence from Perman & Stern (2003) suggest empirically

that the EKC does not exist and that if appropriate statistical techniquesand more inclusive samples are used, a probably more realistic picture ofthe EKC arises: Although there may be an EKC for concentrations of pol-lutants, emissions tend to rise monotonically with income (Stern 2004). Thiseven seems to be true for SO2 emissions, a pollutant that has usually beenused as evidence in favor of the EKC. However, time-related factors thatare unrelated to income seem to reduce pollution in countries at all levelsof income (Stern 2004). This is in line with Dasgupta et al. (2002) who

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describe evidence that even in developing countries environmental problems

are addressed and remedied.Taken together, all of these later studies on the EKC show that on empir-

ical as well as on theoretical grounds this inverted U-shape between incomeand pollution seems to be highly questionable. It thus becomes evident fromthe studies focusing merely on the question of how income influences pollu-tion that important facets of environmental quality provision are missing inthe literature on the Environmental Kuznets Curve, leading to these ratherquestionable results. More recent studies therefore attempt to include fac-tors that seem to be crucial for environmental performance but which havebeen neglected in earlier studies.

2.2 Enlarging the Scope Step 1: EnvironmentalQuality and the Political System

A number of studies exist that are linked to the topic of democracy ordemocratic structures and the environment. Most of the empirical liter-ature shows that in general, democracies tend to be better providers ofenvironmental quality, although the effect size seems to vary strongly withthe particular indicator used to proxy environmental quality (Barrett 2000;Bernauer & Koubi 2009; Deacon 1999, 2003; Torras & Boyce 1998).

The general logic underlying most of these studies is derived from the

literature dealing more broadly with regime type and the provision of publicgoods. In this literature, it is argued that democracies provide more publicgoods to their citizens than autocracies because in order to survive in of-fice, democratic leaders need the support of the majority of their citizenry(Bueno De Mesquita et al. 2003; Deacon 1999, 2003; McGuire & Olson 1996;Midlarsky 1998; Olson 1993).

In this context, most authors rely on Bueno De Mesquita et al. (2003)sselectorate theory to analyze the influence of the political system on theprovision of public goods (Bernauer & Koubi 2009; Smith 2006). Followingthe terminology of Bueno De Mesquita et al. (2003), we can define theselectorate as the group in a society that is eligible to select or elect the leader

of the country. The winning coalition is then defined as the subgroup of theselectorate whose support is necessary for the leader to gain or stay in power.In a democracy with a majoritarian electoral system, the winning coalitionwould be at least 50% of the electorate, whereas in an autocracy this wouldbe a small elite group usually consisting of the military or party elites.Applying Bueno De Mesquita et al. (2003)s terminology we can deduce thatleaders in autocracies need to satisfy a smaller winning coalition in order tostay in power than leaders in democratic countries. Since leaders have onlylimited resources at their disposal to attain political support, it follows thatautocratic leaders can concentrate these resources on their small winning

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coalition whereas leaders in democracies need to disperse their resources to a

larger group. To maximize political support given their resources, it is moreefficient for democratic leaders to provide public goods than to buy off theirwinning coalition with targeted private goods. Consequently, democraticleaders should provide more public goods to ensure the support of a largergroup, whereas in autocracies leaders should mostly rely on private goodstargeted to their small winning coalition.

In contrast to the reasoning of Bueno De Mesquita et al. (2003), it canbe argued that autocracies might supply more public goods as their leadersusually have a longer planning horizon2. As most environmental problemsdevelop slowly and often only become apparent in the distant future, demo-cratic leaders who can be seen as being more myopic due to more frequent

elections might not be interested in facing the short-term costs of provid-ing long-term environmental quality (Congleton 1992; Midlarsky 1998). Inaddition, some studies claim that in mature democracies public goods areunderprovided because special interest groups have gained a disproportion-ate influence on the government. Therefore, democratic governments oftenprovide private goods to these interest groups instead of providing publicgoods to the whole population (Congleton 1992; Olson 1982).

However, as mentioned above, most of the empirical literature shows thatdemocracies tend to be better providers of environmental quality (Barrett2000; Bernauer & Koubi 2009; Deacon 1999, 2003; Torras & Boyce 1998). Inhis studies Deacon (1999, 2003), for example, shows that non-democracies

seem to under-provide public goods such as education, infrastructure andenvironmental quality. These results are supported by Bernauer & Koubi(2009) who find that democratic structures are conducive to local air qualityas measured by SO2. Using a wide range of environmental indicators Li& Reuveny (2006) find that in general, democracy reduces environmentaldegradation; however, the strength of the effect varies across indicators.Gassebner et al. (2006) employ extreme bounds analysis to determine whichfactors are robustly related to environmental quality (measured by SO2, CO2and BOD). Except for a dictatorship dummy, which is negatively related toCO2 emissions, none of the political variables exerts a consistent influence.

Ward (2008) analyzes the influence of democracy on sustainability (mea-

sured by a countrys national footprint and genuine savings, which is a mea-sure of weak sustainability) while controlling for public opinion (world valuesurvey). He finds that stable core autocracies perform worse with regardto strong sustainability compared to stable core democracies. Furthermore,liberal democracies only seem to score higher on the indicator measuringweak sustainability if the party system is not too open. Surprisingly, publicopinion on the importance of environmental issues does not seem to matter

2As Bueno De Mesquita et al. (2003) note: once autocratic leaders survive the firstyear in office they usually stay in office for a long period.

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much.

Fredriksson & Wollscheid (2007) find that democracies are associatedwith stricter environmental policy measures than autocratic countries. How-ever, the positive impact of democracies seems to be due to parliamentarydemocracies. Presidential-congressional democracies, in contrast, do notseem to set significantly stricter environmental policies than autocracieswhere environmental policies are measured by cross-sectional variables fromthe Environmental Sustainability Index (Center for International Earth Sci-ence Information Network (CIESIN) 2002) and prices of super and dieselgasoline.

In their analysis of the Montreal Protocol, Murdoch & Sandler (1997)find that both democratic and more wealthy countries are characterized by

larger reductions in chlorofluorocarbon (CFC) emissions, which is an ozone-depleting substance. Finally, Torras & Boyce (1998) show that for certainpollutants such as sulfur dioxide and smoke, higher levels of political rightsand civil liberties are associated with better environmental quality, especiallyin low-income countries.

In contrast to the supporting evidence on the democracy and environ-mental quality nexus, Baettig & Bernauer (2009) find that in the contextof the Kyoto Protocol process, democracy has only a weak effect on green-house gas emissions. Similarly, in their cross-sectional analysis, Fredriksson& Svensson (2003) find no effect of democracies displaying higher environ-mental stringency.

In addition to distinguishing between democratic versus autocratic struc-tures, some studies delve further into the specific aspects of democracies thatseem to be related to the provision of environmental quality. To this end,these studies focus on very stable democracies, resulting in a sample thatis restricted to OECD countries only. By constructing a composite index ofair, water and soil pollution as well as waste management Jahn (1998) findsthat strong neo-corporatist arrangements and strong (oppositional) socialdemocratic parties are correlated with better environmental performance.Furthermore, Jahn & Walti (2007) find that federally and centrally gov-erned OECD countries perform equally well with regard to environmentalperformance because in federal systems corporate actors play a crucial role

compensating for the lack of strong central governing structures. Finally,Jahn (2008) shows that government orientation regarding green values aswell as corporatism are associated with a reduction in CO2 emissions.

Altogether, the literature on regime type and the provision of environ-mental quality counts more studies in favor of a positive effect of democ-racies. However, as the studies of Fredriksson & Svensson (2003); Baettig& Bernauer (2009) and Ward (2008) show, the general result may not holdfor all specific settings. Thus, one needs to carefully adjust the theoreticalarguments underlying the connection between a countrys political systemand its environmental performance to the specific context of each study.

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Consequently, the theoretical section will apply the general argumentation

of the literature on regime type and public good provision to the specificsetting in developing countries, which lies at the heart of this study.

2.3 Enlarging the Scope Step 2: EnvironmentalQuality and Globalization

Not only do more recent studies incorporate various aspects of the polit-ical system in their analysis, they also include non-domestic factors thatmostly fall under the label of globalization. The general influence of glob-alization or international integration on environmental quality is strongly

debated. On the one hand, several positive consequences of internationalintegration with regard to the provision of environmental quality have beenposed. Firstly, globalization implies a flow of information and knowledgeon environmental problems, their consequences and how to abate pollution.Consequently, people could become aware of environmental quality as a pub-lic good that needs to be protected (Ward 2006). Secondly, due to increasingtrade and foreign direct investment, recent technologies might spread evento less developed countries. Additionally, some authors argue that tradeand FDI in general produce welfare enhancing gains, which might movea country upward on the Environmental Kuznets Curve (Frankel & Rose2005). Furthermore, international actors, like international organizations,

non-governmental organizations (NGOs) or individual countries, might pro-vide low- and middle-income countries with knowledge, technologies anddevelopment aid, which could enable those countries to provide better en-vironmental quality. Finally, many international treaties and organizationsoblige their member countries to cooperate on a number of environmentalproblems (Neumayer 2002b; Ward 2006).

On the other hand, globalization has been blamed for various negativeconsequences with regard to environmental quality, most prominently inthe literature on pollution havens (Jaffe et al. 1995; Esty & Giradin 1998;Stafford 2000). The gist of the pollution haven argument is that indus-trialized countries are only able to become cleaner by shifting their dirty

industries to less developed countries, which usually have less stringent en-vironmental regulations. Some authors go even further and argue that forfear of losing industries to countries with less stringent regulations, gov-ernments will lower their environmental standards in order to prevent thisshift from taking place (Revesz 1992; Drezner 2001). This argumentation isaccordingly referred to as the race to the bottom hypothesis.

Taken together, it can be concluded that the overall impact of glob-alization on environmental quality is strongly debated. The next sectionstherefore review the relevant literature dealing consecutively with each ofthe four aspects of international integration membership in international

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organizations, development aid, trade and FDI flows.

2.3.1 International Governmental Organizations

When refering to any kind of cooperation between states, international re-lations theory usually uses the label regime. Perhaps the most prominentdefinition of international regimes describes them as

sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors expectations convergein a given area of international relations (Krasner 1983, 3).

However, this definition causes several difficulties for empirical researchas it covers a wide range of international cooperation including non-explicitor non-formalized agreements, which are difficult to identify and measure(Tooze 1990; Porter et al. 2000). Consequently, scholars in later researchhave tried to narrow down the term regime as

institutions with explicit rules, agreed upon by governments,that pertain to particular sets of issues in international relations(Keohane 1989, 4)orsocial institutions consisting of agreed-upon principles, norms,rules, procedures, and programs that govern the interactions of

actors in specific issue areas (Levy et al. 1995, 274).

Although these definitions are more concrete compared to the original defi-nition by Krasner, they still leave room for many different forms of interna-tional cooperation such as bilateral versus multilateral treaties or short-termagreements versus long-term international organizations. In order to be ableto analyze the effect of international institutions, it is therefore necessary todistinguish between the different forms of cooperation and to specify whattype of cooperation one is analyzing.

In this thesis I therefore focus on international governmental organiza-tions since they are the most formalized and long-term forms of international

political cooperation. These two features make IGOs a likely regime type toinfluence public good provision in developing countries as these organizationspossess at least some organizational capacity to interact with governmentand society representatives in developing countries.

According to Pevehouse et al. (2004), IGOs are organizations that

1. consist of at least three members of the COW-defined state system

2. hold regular plenary sessions at least once every ten years

3. possess a permanent secretariat and corresponding headquarters

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4. and which are not emanations of already existing organizations.

The general purpose of international governmental organizations is to enableor facilitate cooperation at the international level. Hence IGOs should allowcountries to realize benefits from mutual cooperation by reducing transac-tion costs, by limiting uncertainty, by widening the shadow of the future, byincreasing reputational costs and by allowing credible commitments (Keo-hane 1984; Abbott & Snidal 2000).

More precisely, according to Keohane (1984) and Krasner (1983), IGOsfacilitate collective action by reducing transaction costs that would otherwisedeter cooperation efforts. Transaction costs may result from bargaining and

enforcement efforts that arise since incomplete information does not permitstates to get a clear picture of other states interest and actions (Coase 1960;Milgrom & Roberts 1992; Williamson 1985). IGOs can solve these problemsby providing information, making rules explicit and therefore making devi-ations recognizable3. One example of an institution that worked in this waywas the informal GATT (General Agreement on Tariffs and Trade) regime.Although it had no enforcement powers before it was transformed into theWorld Trade Organization (WTO) in 1995, GATT clarified the expecta-tions of the actors involved and thus facilitated international cooperation(Reinhardt 2001; Stone et al. 2008).

Furthermore, IGOs enlarge the scope of cooperation by allowing for the

possibility of issue linkage (Martin 1993, 1995) and by increasing the reputa-tion costs of non-compliance with agreements (Simmons 2000)4. Moreover,Moravcsik (2000) points out that international organizations allow statesto make credible commitments, thereby enhancing cooperation. A furthermechanism by which regimes can influence states is that they facilitate learn-ing (Young & Levy 1999).

However, not all scholars in international relations accept these argu-ments of how IGOs can influence state behavior. Realists, in contrast, arguethat

3Similarly, Keohane (1982) expresses these arguments in a framework of supply anddemand. In particular, he argues that one can interpret the theory of hegemonic stability

as reflecting the supply side of international organizations, implying that if a hegemon ispresent, the supply of an IGO is possible. In contrast, he sees his explanation as situatedon the demand side of international organizations. Since the international system oftendisplays what he calls market failures (uncertainty and transaction costs), states actingunilaterally forgo benefits that they could obtain by acting in a coordinated way. Regimesare therefore a way to circumvent uncertainty and transaction costs and thus to benefitfrom mutual cooperation.

4Simmons (2000) argues that this reputation effect is more pronounced for countrieswith a strong tradition in respecting the rule of law. Similarly, Mansfield et al. (2002)argue that these reputation costs are higher for elected leaders, hence they play a greaterrole in democracies.

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IGOs reflect, rather than effect, world politics (Boehmer et al.

2004, 1).

According to this view, although countries may create internationalregimes, these regimes do not have an independent effect on countries courseof action as these IGOs merely reflect existing interests. Hence countries willonly comply with IGOs if it is in their direct short-term interest. This per-spective is of course in strong contrast to how constructivists, functionalistsor liberal institutionalists conceive of IGOs as a means of allowing and fos-tering international cooperation that would hardly take place without thecontext of international organizations.

Today, most international relations scholars, however, agree that

global politics is increasingly organized around regimes and in-stitutions that foster cooperation by providing information andorganization structure, promoting norms and common belief sys-tems, and reducing transaction costs (Boehmer et al. 2004, 3)5.

Boehmer et al. (2004), for example, show that joint membership in struc-tured IGOs, i.e. regimes that are characterized by well defined and struc-tured organizations, significantly reduces the likelihood of conflict onset.Using social network analysis, Dorussen & Ward (2008, 190) show in a sim-ilar study that direct as well as indirect IGO membership ties reduce the

likelihood of interstate conflict as IGO membership allows the transmissionof information on countries interests and intentions. They further argue,as do Russett & Oneal (2001), that IGOs not only allow for informationexchange but also promote cooperation as country officials might come toappreciate other points of view.

Ingram et al. (2005) argue that IGOs reduce transaction costs becausethey reduce uncertainty, allow states to commit to future actions, and pro-mote rules such as fair exchange. Building on these arguments, they claimthat joint membership in IGOs increases bilateral trade. They make the ar-gument that even organizations with only a social and cultural purpose suchas the World Health Organization enhance bilateral trade. The reasoning

behind this is that social and cultural IGOs

(1) [...] increase awareness, sympathy, empathy, and even trustbetween the citizens of different countries: and (2) the resulting

5However, this does not mean that realist objections are not embedded within newertheories on the functions of international organizations. Neoliberal institutionalists, forexample, although they accept most of the functionalist perspective on IGOs, combinethese with the realist axioms of systemic anarchy, the importance of power, and thepreeminence of states interests. In this view, IGOs may mainly promote cooperation bystrengthening reciprocity through regularizing interactions (Boehmer et al. 2004; Mitchell& Deane 2008).

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shift in cross-national relations and perceptions results in more

trade (Ingram et al. 2005, 830).

In addition, similar to Boehmer et al. (2004) Ingram et al. (2005) arguethat the effect on trade will be stronger for more structured IGOs because,through their organized bureaucracy, structured IGOs are better able toenforce rules, monitor states and allow for a more detailed exchange betweenmember states. Their results indeed show that IGOs in general, as well aseconomic, social and cultural IGOs in particular, increase bilateral trade.As expected, the effect is more pronounced for structured IGOs than forminimally institutionalized organizations.

In contrast to these numerous studies showing a strong effect of IGOs,

Stein (2005) finds that international treaties have little constraining power.She argues that those factors that lead states to enter into internation-ally binding agreements are later decisive for their compliance, which wouldsuggest that treaties seem to have merely screening purposes rather thanconstraining power.

Overall, however, this multiplicity of studies shows that internationalgovernmental organizations do indeed appear to foster cooperation betweenstates in various issue areas such as trade and peace-building. In additionto these studies, there exists a more recent strand of literature that analyzesthe domestic outcomes of IGO membership. Whereas the previous strand ofliterature focuses on the many ways in which IGOs can foster international

cooperation, this new strand of literature highlights that IGO membershipcan also influence domestic outcomes.

Pevehouse (2002b) and Mansfield & Pevehouse (2008), for example, showthat membership in international organizations is a way for governments tosignal their willingness to stick to a particular course of action. They findthat countries undergoing a democratization process are more likely to joinstandards-based (such as human rights or environmental organizations) andeconomic IGOs because they allow governmental leaders to signal to theirdomestic and international audience that they are willing to continue polit-ical and economic reform. In contrast to political or universal organizationssuch as the UN, standards-based and economic organizations demand that

countries implement specific policies or standards, making membership inthose organizations a more credible signal of democratization. Pevehouse(2002a) goes even further by showing that membership in specific regionalIGOs significantly increases the likelihood that a political regime will changefrom autocratic to democratic.

The more recent literature on policy diffusion6 also shows that IGO mem-bership affects domestic policy choices since connections in the network of

6A commonly accepted definition of diffusion comes from Strang (1991, 325), who statesthat diffusion happens when the prior adoption of a trait or practice in a population altersthe probability of adoption for remaining non-adopters.

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international organizations can provide countries with information that fos-

ters policy learning, thereby providing a socialization process among states(Cao forthcoming; Hafner-Burton et al. 2008; Simmons & Elkins 2004; Franket al. 2000). This is underlined by Dobbin et al. (2007, 462) who state that

international organizations, either as agents or as sets of rulesthat enhance transparency, appear to have had important effectson information flows and policy transmission.

Finally, studies analyzing how IGOs affect a countrys environmentalperformance are very rare. One notable exception is Ward (2006) who ex-amines whether countries that are more central to the network of inter-national environmental regimes act more sustainably at the national level.

Using social network analysis, he finds that indeed countries that are morecentral also care more about domestic environmental quality. Although hisstudy concentrates on the network of international environmental treatiesand organizations he notes that

[. . . ] the Kantian view is that IGOs, economic interdependenceand democracy form a mutually supportive triangle that pro-motes peace. The network of IGOs facilitates deterrence of badbehaviour, mediation and problem-solving, sharing of informa-tion and the generation of norms and trust (Russett & Oneal2001). This raises the possibility that nations environmentalrecords may relate to their general position in the international

system, just as recent work suggests that joint membership ofnon-trade related IGOs increases trade between pairs of nations(Ingram et al. 2005) Ward (2006, 154).

Consequently, this argumentation indicates that there are good reasonsto analyze the impact of IGO membership in general on a countrys willing-ness and capability to take care of its environment.

To summarize the literature on IGO membership, one can conclude thatmost studies show that IGOs not only foster cooperation between states butalso influence domestic outcomes such as regime changes or policy learning.It is even suggested that IGOs can be an important actor in shaping the

capacity of their member countries to improve their environmental records(Ward 2006). Consequently, this study argues that IGO membership canplay a crucial role in influencing a countrys environmental performancewhile taking both other forms of globalization as well as important domesticfactors such as the political system of a country and its national income intoaccount.

2.3.2 International Aid

Similar to the literature dealing with the effects of IGOs, there are manystudies analyzing the effectiveness of international aid as well as the rea-

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soning behind aid allocation decisions. As in the case of IGO membership

studies linking international aid to environmental quality are rare. Thissection therefore begins with a short review of the literature dealing withthe effectiveness and the reasons behind aid allocation in general and thendiscusses the literature that ties aid to environmental degradation.

One of the earlier studies dealing with the effectiveness of aid is Boone(1996), in which he analyzes whether aid contributes to the alleviation ofpoverty. His empirical results, however, show that aid does not seem tobenefit the poor but that it is mostly profiting a small political elite andincreasing the size of government. Moreover, he shows that the impact ofaid is not conditional on the political system of a country, implying thatdemocratic governments are not more effective than autocratic governments

in using aid flows. Based on these findings, he conclude that aid might onlybe effective if it is conditional on policy change such that the political elitecannot easily use aid flows for its own enrichment.

One reason why Boone (1996) finds aid to be ineffective in alleviatingpoverty might be due to the motives of aid allocation. Many studies showthat in allocating bilateral aid, donors seem to pay more attention to theirown interests and strategic aims (such as promoting exports, supporting theimplantation of donor firms in recipient economies, and maintaining accessto essential imports) than to the characteristics of the recipient countriesthemselves (for example the level of democracy, the character of economicpolicies, and good governance practices) (Alesina & Dollar 2000; Alesina &

Weder 2002; Lundsgaarde et al. 2006; Maizels & Nissanke 1984; McKinlay& Little 1977).

This finding that aid allocation is mostly driven by donor interests seemsto hold mainly for bilateral aid. Multilateral aid, in contrast, seems tobe driven more by recipient needs (Maizels & Nissanke 1984). Neumayer(2003c), for example, shows that economic needs of recipient countries arean important selection criterion for most multilateral donor institutions, es-pecially the UN agencies. Furthermore, strategic concerns such as highermilitary expenditures, which were important for bilateral aid allocation, donot seem to be crucial for multilateral aid allocation. Looking at aggre-gate multilateral aid Neumayer (2003c) shows, furthermore, that political

freedom is significant in explaining aid allocation whereas personal integrityrights are not.

The finding that political rights are only important for aid allocation ifmultilateral in contrast to bilateral aid is considered is also reinforced bya study by Zanger (2000) who shows that good governance criteria do notplay any significant role for the allocation of European bilateral aid.

In a similar study, Neumayer (2003b) differentiates between factors thatare crucial for aid eligibility and factors that explain the amount of aidreceived by a country. His results show that at the aid eligibility stage,which can be seen as a gate-keeping stage, respect for civil and political rights

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plays a statistically significant role for most donors. However, looking at the

determinants of the level of aid, he shows that most donors provide more aidto countries that have a poor record on either civil and political or personalintegrity rights. Based on these results, he concludes that contrary to theircommitment to human rights and good governance, donor countries do notreward respect for these rights in their foreign aid allocation (Neumayer2003b, 650).

Overall, these studies on bilateral and multilateral aid allocation seemto suggest that the main driving forces behind development aid are donoreconomic interests instead of recipient need interest, which would explainto some extent why Boone (1996), for example does not find that develop-ment aid significantly reduces poverty. However, some studies show that

international aid influences certain domestic outcomes such as the adoptionof liberal economic reforms. Similar to the studies that investigate howIGO membership can serve to diffuse policy choices and policy outcomesas described above, there are some studies which argue that policy changecan be brought about by the use of financial channels such as trade ties orconditional lending.

Henisz et al. (2004), for example, find that multilateral lending coercesstates to adopt more liberal reforms in the telecommunications and theelectricity sector. The logic underlying the conditional lending argumentis similar to the reasoning of how the International Monetary Fund (IMF)can influence policy change in developing countries. In this context, Vree-

land (2003) argues that governments often use the conditionality imposedon them by the IMF in order to implement policies that they are unable toimplement independently. Hence blaming an international lending institu-tion such as the IMF or the World Bank allows governments to introduceimportant policy changes without risking electoral punishment.

Studies connecting foreign aid with environmental performance in de-veloping countries are rather rare. Gutner (2005), for example, argues thatthe World Bank has undergone a so-called greening reform since the mid1980s. Although environmental projects are still a minority of projects thatthe World Bank finances, Nielson & Tierney (2003) find evidence for the factthat an environmental reform of the Banks lending decisions occurred in

the early 1990s with the establishment of the Global Environment Facility(GEF).

Using a principal-agent framework, McLean (2006) investigates the strate-gic interactions between the GEF7, as the aid donor, on the one side and

7The Global Environment Facility was created in 1991 by Western governments andwas initially attached to the World Bank, later becoming nominally independent of theBank (Young 2002). Its purpose is to address global environmental issues while sup-porting national sustainable development initiatives. The GEF is the designated financialmechanism for a number of multilateral environmental agreements (MEAs) or conventions[...] such as the Convention on Biological Diversity (CBD), the United Nations Framework

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governments and NGOs, as aid recipients, on the other. The author shows

that the effectiveness of environmental aid is strongly dependent on thestrategic interaction between donor and recipient characterized by factorssuch as

conflicting donor and recipient motivations, the donors uncer-tainty about its recipients commitment to project objectives, thedonors inability to make a credible commitment to stop aid dis-bursements to influential non-complying recipients, and tensionsbetween various policy goals that national governments pursue(McLean 2006, 164).

The findings of McLean (2006) are in line with the conclusions of an

older study by Keohane & Levy (1996) who claim that the prospects forsuccessful environmental aid are rather small. Factors that seem to makeeffective use of environmental aid so difficult include the divergent interestsbetween donor and recipient countries and the difficulty of building lastingcapacities in recipient countries such that environmental protection effortscontinue once international aid ceases to flow. In addition, it is argued thatmost of the time, aid flows are seen as short-term inputs whereas most en-vironmental problems are long-term in nature, which is another reason whyenvironmental aid is often rather ineffective. However, Keohane & Levy(1996) also underline positive impacts of environmental aid, for examplethe possibility of attracting more attention towards environmental protec-

tion such that more effort is devoted to solving environmental problems inrecipient countries.

To sum up, the literature on the effects of aid does not give rise tovery optimistic conclusions. Rather, donor countries see

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