How Green are Exporters?

Date01 July 2015
Published date01 July 2015
Sourafel Girma* and Aoife Hanley**
There is a well-established theoretical and empirical literature that shows that
exporters are more innovative than otherwise equivalent non-exporters. In this
article, we ask whether this is also true when it comes to the effects of adopt-
ing greener production techniques. Using an instrumental variables strategy
based on UK firm level data, we find robust evidence that exporters are more
likely to report their innovation as having a ‘high/very high’ environmental
Economists largely disagree on the overall effects of trade on the environment.
They generally agree, however, that newer technologies are better for environ-
mental quality and that these newer technologies are enabled by trade (e.g.
Levinson, 2007).
Early studies investigated the impact of trade on the envi-
ronment using industry data. These early studies, however, have the drawback
of masking substantial heterogeneity within industries, as pointed out by Cui
et al. (2012). In fact, there is now remarkably robust evidence that firms are
heterogeneous even within narrowly defined industries (Bartelsman and Doms,
2000), that more efficient firms become exporters (Grossman and Helpman,
1995; Girma et al., 2008a) and that exporters are more likely to undertake
technology upgrading (Bustos, 2011; Cui et al., 2012; Davies and Batrakova,
2012; Hanley and Monreal-P
erez, 2012).
Recent work has therefore shifted attention to firm-level analysis. For
example, Davies and Batrakova (2012) use firm-level data to examine the envi-
ronmental premium from exporting. They find that technology upgrading has
a positive effect on environmental quality. In this article, we ask whether
exporters apply greener production techniques than non-exporters, and
whether these techniques have more beneficial effects for the environment. The
novelty of our article lies in our identification of exporting on environmental
*University of Nottingham
**Christian-Albrecht University (also IfW, Kiel)
However, as Davies and Batrakova (2012) have pointed out, if trade (exporting) is endog-
enized, the positive effects for trade on environmental quality are less clearcut. They refer a
study by Copeland and Taylor (1994) which shows ambiguous effects for trade.
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12075, Vol. 62, No. 3, July 2015
©2015 Scottish Economic Society.
outcomes. Specifically, we endogenize the exporting decision.
In addition, we
use an alternative measure of environmental quality, namely the effect of a
firm’s technology on the efficiency of energy and materials usage. Energy and
materials efficiency is important for firms. This is because energy and materials
are becoming increasingly expensive and firms which manage to economize on
energy use can improve their profits and simultaneously reduce the amount of
emissions for each unit of product produced.
To preview our results, our econometric estimates based on UK firm-level
data from 1998 to 2004, show that exporters are up to 16% more likely than
non-exporters to report that their green technology adoption has a ‘highvery
high’ impact on energy or materials cost reductions. Exporters are found to
be substantially more likely to state that their technology is instrumental in
reducing negative environmental impacts.
Our article is structured as follows. Section II summarizes the relevant
background literature, Section III presents our empiric al model and Sec-
tion IV discusses the key features of the data used. Section V presents the
empirical findings and Section VI concludes.
At the aggregate level, trade theory describes three mechanisms by which the
internationalization of firms can impact on overall emissions levels. The tech-
nique effect relies on a dynamic where trade gives rise to higher profits. These
higher profits, in turn, can be invested in better quality production processes
which are emissions-saving. The other two effects, the scale and composition
effect are predicted to have an ambiguous effect on the environment.
cally, the scale effect means that trade allows a firm to expand its production.
An expansion of production has implications for higher emissions in the pro-
ducing country. The composition effect describes the reallocation of certain
industries (typically high in emissions) to countries with a comparative advan-
tage in these activities. This effect is a consequence of specialization. Copeland
and Taylor (1994) predict ambiguous effects of trade on the environment. In
their model, the industrialized countries (North) will specialize in clean
Davies and Batrakova (2012), in their excellent study, investigate increases in energy effi-
ciencies as a function of the firm’s exporting status in a framework that accounts for selec-
tion effects (propensity score matching (PSM) with difference-in-differences). PSM imposes
tight restrictions on the data, i.e. that there are no omitted variables which correlate with the
firm’s decision to export which could co-determine the firm’s subsequent energy usage pat-
terns, hence 2SLS is the preferred specification if appropriate instruments are available. Fran-
kel and Rose (2005) and more recently Managi et al. (2009), use aggregate data (country)
level to examine emissions. Similar to us, these studies use 2SLS to endogenize trade. How-
ever, the level of aggregation does not allow these studies to also consider possible heteroge-
neity at the level of the firm which would impact on the decision to export.
Kreickemeier and Richter (2012) suggest the existence of a ‘reallocation’ effect. This
effect, describes the higher competitiveness (efficiency) of firms which are environmentally
efficient as well. The ‘reallocation’ effect picks up on the observations made by environmental
economists that firms which reduce waste/are more energy efficient enjoy a double-dividend
of lower average emissions and higher overall efficiency (Cole et al., 2005, 2008a; Mazzanti
and Zoboli, 2009).
Scottish Journal of Political Economy
©2015 Scottish Economic Society

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