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Globalization and the Environment: Evidence from China
Yang Zhang1; Xiuli Yang2
Source PublicationThe Business Review

Globalization has become an irreversible process and environmental degradation is an issue too costly to ignore. Accordingly, this research attempts to investigate the environmental impact of globalization in China.  We find that in spite of a negative composition effect and a detrimental impact through scale effect, the resultant rise in income can enhance the capability and willingness of nation to protect environment. Trade and investment liberalization may furnish domestic firm with better access to and stronger incentive to adopt new and “greener” technologies to stay competitive in global market.  We also argue that the interaction between government, firms and consumer society matters and may affect the determination of environmental policy and subsequent environmental performance.  Globalization, commonly understood as the process of increasing interdependence among countries and their citizens and signaled by rising trade liberalization and increasing foreign direct investment, has social, cultural, political and economic dimensions. Debates over globalization has been going on for some time; a long peacetime of expansion, low unemployment rates and rapid growth in real income are generally seen as the fruits of globalization while climate change, rapid depletion of natural resources and increasing inequality in the world distribution of income are among globalization’s negative externalities. In recent discussions the most apparent divide between the two views pertains to globalization and environment. Critics assert that globalization is detrimental to environment mainly based on the pollution-heaven hypothesis (Walter, 1982). This hypothesis suggests that globalization allows firms to take advantage of cross-country differences on national environmental regulations and that falling trade barriers induces pollution-intensive industries to relocate to countries with weaker environmental regulations. A similar argument is based on eco-dumping hypothesis which suggests that governments in developing countries may purposely hold their lax environmental policies or “race to the bottom” in environmental standards so as to give their domestic producers an advantage in competitive international markets and to prevent the situation of less capital inflow, lower exports, higher unemployment and the erosion of tax base resulted from increased stringency of environmental regulations. (Christamann & Taylor 2001, Leonard, 1998).  In contrast, some argues that globalization is conducive for environmental technologies and management transfer from countries with stricter standards to developing countries (Drezner, 2000). Meanwhile, governmental failure to protect the environment might be ameliorated through self-regulation of environmental performance by firms in developing countries (Christamann & Taylor, 2001). Another significant positive impact lies on the role of globalization on income growth which eventually drives up the demand for cleaner environment, as suggested by Environmental Kuznets Curve hypothesis.   In the light of these diverse and conflicting contentions, this research attempts to provide some evidence from China. Thanks to the policy of reform and openness implemented since 1978, the last two decades have seen rapid economic growth in China and an explosive growth of FDI flowing into the country. In this dramatic process of globalization, severe environmental damages have been accompanying this rapid growth and have captured serious public concerns. Increased urbanization and economic activity has taken place in the context of an environment subject to a high level of pollution. According to CNN, the World Bank recently examined 20 of the most severely polluted cities in the world. Sixteen of these cities are located in China. In many urban areas for example, atmospheric concentrations of pollutants such as suspended particulates and sulfur dioxide routinely exceed World Health Organization safety standards by very large margins (Wang & Wheeler, 2005). Given the multi-dimensional impacts of globalization on China and the rising environmental concerns raised by the anti-globalists, it is of great importance to uncover the environmental consequence of globalization and the impact of globalization on environmental institutionalization in China.  This paper temps to investigate the relationship between globalization and environment in China. It does so by examining the complex and diverse channels through which globalization and economics openness in particular affects environment. By looking at the economic indicators of globalization and environmental performance, we discuss the pollution haven hypothesis and industrial flight and show whether and how the process of globalization is conducive to facilitate the diffusion of global environmental norms in China. It will be analyzed both positive and negative impacts of globalization on China’s environmental performance. The rest of the paper is outlined as follows. Section II reviews recent literature on globalization and environment. Section III is dedicated to specify the environmental consequences of globalization through a variety of channels. Section IV concludes.  The irreversible trend of globalization and the critical importance of environment have both made this globalization-environment nexus a hot topic among scholars and researchers. As such, considerable effort has been made to address this issue at both theoretical and empirical level.  Developing countries in general are considered to have less strict environment policy and are less stringent in law and regulations, compared to developed countries. Given this cross nation differences in environment regulation, fears have been voiced that globalization or trade liberation in particular will facilitate the transfer of pollution intensive industry to countries with less stringent regulations, rendering the recipient country pollution heaven by specifying in the production of highly-polluting products (Walter, 1982). Nevertheless, empirical research from this magnitude has showed little support for the pollution haven hypothesis (Eskeland and Harrison, 2003; Wang and Jin 2002). Some researches have focused particularly on the trade-environment debate where the overall impact of trade on environment is usually decomposed into scale effect, technology effect and composition effect (Copeland and Taylor, 2001). Using a cross country panel data on sulfur dioxide concentrations, Antweiler et al (2001) estimated the magnitudes of three effects and found a overall beneficial impact of freer trade on environment. As globalization contributes to economic growth, it has indirect impact on environment through the linkage of income growth. Environmental Kuznets Curve hypothesis states that environmental degradation will increase with income at a low income regime and decline after income level reaches a certain threshold. The search of an inverted-U curve between pollution level and income has been the topic for many research attempts (Grossmand and Krueger 1995; Selden and Song 1994).  Among extensive studies conducted examining the globalization-environment relation, considerable effort has been dedicated to the case of China but the findings are quite mixed. Chai (2002) documents an overall negative impact where positive composition effect and technology effect are offset by negative scale effect. Nevertheless, some pointed out a favorable impact where globalization and environment are found to be complimentary. Using provincial data on Chinese water pollution, Dean (2002) shows that freer trade may mitigate the environmental damage via income growth and the net effect in China is beneficial. Based on a case study of two cities in China, Shin (2004) finds that economic openness positively affected domestic environment policy. A recent study by Wheeler analyzes data on air quality in China, Brazil and Mexico. Far from experiencing a race to the bottom (lowering environment standard to attract FDI), it was found that three nations have all registered improvements in terms of air quality. Another positive effect is proposed based on self-regulation which refers to firm’s adoption of environmental performance standards beyond the requirements of government regulations.

Fulltext Access
Document TypeJournal article
CollectionFaculty of Business Administration
Affiliation1.University of Macau, Macau, China
2.Shenyang University, China
First Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Yang Zhang,Xiuli Yang. Globalization and the Environment: Evidence from China[J]. The Business Review,2007,7(2).
APA Yang Zhang,&Xiuli Yang.(2007).Globalization and the Environment: Evidence from China.The Business Review,7(2).
MLA Yang Zhang,et al."Globalization and the Environment: Evidence from China".The Business Review 7.2(2007).
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