Pollution and Capital Markets in Developing Countries

46 Pages Posted: 17 Sep 1998

See all articles by Susmita Dasgupta

Susmita Dasgupta

World Bank - Development Research Group (DECRG)

Benoît Laplante

World Bank - Research Department

Nlandu Mamingi

University of the West Indies (Bridgetown)

Date Written: September 1998

Abstract

It is said that firms in developing countries do not have incentives to invest in pollution control because of the weak monitoring and enforcement of the environmental regulations. This argument assumes that the regulator is the only agent that can create incentives for pollution control, and ignores that capital markets, if properly informed, may provide the appropriate financial and reputational incentives. We show that capital markets in Argentina, Chile, Mexico, and the Phillipines react positively (increase in firms' market value) to the announcement of rewards and explicit recognition of superior environmental performance, and negatively (decrease in firms' value) to citizens' complaints. An immediate policy implication from the current analysis is that environmental regulators in developing countries may explicitly harness those market forces by introducing structured programs of information release on firms' environmental performance. At the margin, less resources should be devoted to the enforcement of regulations and more to the dissemination of information which allows all stakeholders to make informed decisions.

JEL Classification: Q28, Q38

Suggested Citation

Dasgupta, Susmita and Laplante, Benoît and Mamingi, Nlandu, Pollution and Capital Markets in Developing Countries (September 1998). Available at SSRN: https://ssrn.com/abstract=124948 or http://dx.doi.org/10.2139/ssrn.124948

Susmita Dasgupta (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-2679 (Phone)
202-522-3230 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/sdasgupta

Benoît Laplante

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-458-5878 (Phone)
202-522-3230 (Fax)

Nlandu Mamingi

University of the West Indies (Bridgetown) ( email )

Department of Economics
Cave Hill
Barbados
246-417-4273 (Phone)
246-417-4270 (Fax)

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