An assessment of the environmental performance of the foreign firms in Vietnam : evidence from the manufacturing sector

Abstract

Ernpirical evidence on the environmental performance of foreign-owned firms has been mixed at best. Recent studies by Eskeland and Harrison (2003) and Elliott and Cole (2008) argue that foreign ownership is associated with superior environmental outcomes relative to the domestic counterparts. In contrast, others such as Pargal and Wheeler (1996) and Dasgupta et al (2000) indicate that no such positive relationship between foreign firms and the environmental outcomes exist in their studies. As a result, this thesis attempts to contribute to the existing literature and the FDI-environment debate.

This thesis investigates the environmental performance of foreign-owned firms in the manufacturing sector in Vietnam. It offers several additional insights into whether the environmental performance of foreign firms depend on a country of origin or export orientation. It also employs alternative environmental measures to determine whether environmental outcomes depend on the choice of the measures used in the analysis. To do so, this study employs the Vietnamese 2004 Enterprise Survey.

The study carefully considers several econometric challenges inherent in the data, namely the non-reporting and the zero-coded observations which present problems under the OLS estimator. Several candidate estimators are reviewed and the negative binomial pseudo-maximum likelihood estimator is found to be the best estimator amongst the candidate estimators. The estimation results reject the hypothesis that foreign-owned firms perform better environmentally compared to private domestic firms. In fact, foreign-owned firms in the manufacturing sector in Vietnam discharge around forty per cent more of the liquid waste per revenue.

I also employ two alternative environmental measures: expenditure on environmental protection and the adoption of waste treatment methods to determine whether the environmental outcomes might be dependent on the measures used in the analysis. Using the likelihood of adopting different treatment methods, the estimation results indicate that foreign firms are not more likely to adopt a treatment method relative to the private domestic firms. The results also indicate that environmental outlay by foreign firms is higher that of the private domestic firms. However, amongst the firms which reported positive outlay of environmental spending, foreign ownership does not imply more spending than the private domestic firms.

Since these results are contrary to some of the literature and some of the theoretical predictions, this thesis also examines whether particular subsets of foreign firms are responsible for the lack of a finding of foreign "greenness". I consider exporting versus non-exporting foreign firms, as well as North (developed countries) versus South (developing countries) foreign firms. The findings show that there is significant statistical difference between the exporting and the non-exporting foreign firms in that the exporting foreign firms discharge more liquid waste per revenue than the non-exporting foreign firms. However, even the non-exporting foreign firms are no better environmentally than their domestic counterparts. A simple model is also developed to explain these results as arising from a combination of trade, FDI and disposal costs leading to sorting of foreign firms according to their environmental performance. Lastly, perhaps the most surprising result, the South foreign firms are no more polluting than their North counterparts, and that the North foreign investors are at least as polluting as the similar domestic counterparts. Show more