Environmental Engineering Reference
In-Depth Information
Another group of World Bank researchers, however, found that foreign
fi
rms and
plants performed no better than domestic companies. Based on
rm-level data in Mexico
(manufacturing) and Asia (pulp and paper), the New Ideas in Pollution Regulation group
found
fi
rm environmental performance to depend on: (1) the scale of the plant (bigger is
better); and (2) the strength of local regulation, both government and 'informal' (Hettige
et al., 1996; Dasgupta et al., 1997). In addition, a study of the manufacturing sector in
Korea found that domestic
fi
rms, a result the
authors attributed to the sensitivity of Korean
chaebol
to public criticism (Aden et al.,
1999).
fi
rms performed better than foreign-owned
fi
Does FDI promote technology leapfrogging?
Technology gaps between developed and
developing countries can be very large. In this context, MNCs can transfer technology
that is cleaner than that currently in use in developing countries, yet which is not state of
the art. Moreover, production processes, especially in manufacturing, are complex and
multi-stage. MNCs may transfer a mixture of older and state-of-the-art technologies.
The concept of technology leapfrogging is that, through transfer by MNCs of the most
e
cient, least polluting technologies, developing countries can move to the global pro-
duction frontier. The economic bene
ts include developing globally competitive indus-
tries, potentially even out-competing producers with older technologies. The reduction in
the pollution intensity of developing country production (and consumption) brings envi-
ronmental bene
fi
fi
ts both locally and, in the case of global pollutants such as carbon emis-
sions, globally.
Three studies of the Mexican steel industry found that foreign
fi
rms were cleaner than
domestic
fi
rms and that FDI generates environmentally bene
fi
cial technology leapfrog-
ging. Mercado (2000) found that foreign
fi
rms in the Mexican steel sector, or
fi
rms that
serve foreign markets, were more apt than domestic
rms to comply with environmental
regulations. Gentry and Fernandez (1998) found that the Mexican government played a
key role, brokering an early agreement with Dutch steel
fi
rms whereby the government
took on some of the environmental liabilities associated with steel production. Later, the
foreign
fi
rms began investing in environmental improvements.
Most tellingly, Gallagher (2004) found that steel production in Mexico is 'cleaner' per
unit of output, in terms of criteria air pollutants, than in the US.
6
The primary reason is
that FDI, as well as domestic investment in new plants, deployed newer and more envi-
ronmentally benign mini-mill technology rather than more traditional and dirtier blast
furnaces.
But a recent study of FDI by US auto companies in China had less optimistic
fi
ndings
(Sims Gallagher, 2006). Based on extensive interviews with plant managers at Ford, GM
and Jeep a
fi
rms transferred outdated automotive pollu-
tion control technologies. While 'somewhat cleaner' automotive technologies were trans-
ferred, potential environmental bene
liates, the study found that US
fi
ts will be outweighed by the increase in the number
of vehicles. Most importantly, FDI did little to improve Chinese technological capabili-
ties because 'US companies have transferred products, but not much knowledge, to
China' (ibid., p. 9). As a result, China (and the world) will reap neither the environmen-
tal nor the economic bene
fi
t of producing at the global technology frontier. In earlier
work, Sims Gallagher (2006) posited that there are 'limits to leapfrogging' through tech-
nology transfer from foreign
fi
fi
rms via FDI. In the case of substantially cleaner automo-
