What Drives Voluntary Eco-Certification in Mexico?

Abstract

Advocates claim that voluntary programs can help shore up poorly performing command-and-control environmental regulation in developing countries. Although literature on this issue is quite thin, research on voluntary environmental programs in industrialized countries suggests that they are often ineffective because they mainly attract relatively clean plants free-riding on prior pollution control investments. We use plant-level data on some 59,000 facilities to identify the drivers of participation in the ISO 14001 certification program in Mexico. We find that regulatory fines spur certification: on average, a fine roughly doubles the likelihood of certification for three years. Hence, the program attracts dirty firms and at least has the potential to improve environmental performance. We also find that plants that sold their goods in overseas markets, used imported inputs, were relatively large, and were in certain sectors and states were more likely to be certified.

Keywords: voluntary environmental regulation, duration analysis, Mexico

JEL Classification: Q56, Q58, O13, O54, C41