Eco-Labeling and Stages of Development

20 Pages Posted: 21 Sep 2003

See all articles by Arnab K. Basu

Arnab K. Basu

College of William and Mary - Department of Economics

Nancy H. Chau

Cornell University - School of Applied Economics and Management; IZA Institute of Labor Economics

Ulrike Grote

University of Bonn - Center for Development Research (ZEF); Leibniz Universit├Ąt Hannover - Faculty of Economics and Management

Abstract

The paper examines the effectiveness of eco-labeling in providing a market-based solution to the under-consumption of eco-friendly products in developing and developed countries. The authors show that whether labeling is an effective device in solving the problem of asymmetric information between sellers and buyers, or whether false labeling severs the link between willingness to pay and environmental conscious production choices, depends crucially on how monitoring intensities respond endogenously to economic growth, openness to trade, and technology transfers. In particular, by accounting for endogenous policy responses to economic growth, it is shown that an inverted-U relationship exists between consumer spending on eco-unfriendly products and national income. In addition, while international trade unambiguously benefits the environment in the presence of eco-labeling with perfect enforcement, trade openness may nevertheless delay the turning point of the growth and environment relationship, when the cost of enforcement falls disproportionately on developing countries, and when environmental policies are employed to reap terms-of-trade gains.

Suggested Citation

Basu, Arnab K. and Chau, Nancy H. and Grote, Ulrike, Eco-Labeling and Stages of Development. Review of Development Economics, Vol. 7, pp. 228-247, May 2003. Available at SSRN: https://ssrn.com/abstract=411194

Arnab K. Basu

College of William and Mary - Department of Economics ( email )

Williamsburg, VA 23187-8795
United States
757-221-1318 (Phone)
757-221-1175 (Fax)

HOME PAGE: http://faculty.wm.edu/akbasu/

Nancy H. Chau (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States
607-255-4463 (Phone)
607-255-9984 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ulrike Grote

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3, D-53113
Bonn
Germany

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management

Koenigsworther Platz 1
Hannover, 30167
Germany

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