What Improves Environmental Performance? Evidence from Mexican Industry

Abstract

Strengthened enforcement raises the price of pollution and provides an incentive to reduce it. A cost-effective complement to stricter enforcement is effective environmental management and training programs within plants.

Using new survey evidence, Dasgupta, Hettige, and Wheeler analyze the effects of regulation, plant-level management policies, and plant and firm characteristics on environmental performance in Mexican factories. They focus especially on management policies: the degree of effort to improve environmental performance and the type of management strategy adopted.

They index effort with two variables: adoption of ISO 14000-type procedures for pollution management and use of plant personnel for environmental inspection and control. Proxies for strategic orientation are two indices of mainstreaming: assigning environmental responsibilities to general managers instead of specialized environmental managers, and providing environmental training for all plant employees, not just specialists. Detailed survey data let them test the performance impact of such factors as ownership, scale, sector, trade and other business relationships, local regulatory enforcement, local community pressure, management education and experience, and workers` general education. Their findings:

Process is important. Plants that institute ISO 14000-type internal management procedures show superior environmental performance.

Mainstreaming works. Environmental training for all plant personnel is more effective than developing a cadre of environmental specialists, and assigning environmental tasks to general managers is more effective than using special environmental managers.

Regulatory pressure works. Plants that have experienced regulatory inspections and enforcement are significantly cleaner than those that have not.

Public scrutiny promotes stronger environmental policies. Publicly traded Mexican firms are significantly cleaner than privately held firms. Size matters. Large plants in multiplant firms are much more likely to adopt policies that improve environmental performance.

OECD influences do not matter. It is generally assumed that plants linked to OECD economies show superior environmental performance, but they find no evidence that OECD links-including multinational ownership, trade, management training, or management experience-affect environmental performance.

New technology is not significantly cleaner. They find no evidence that plants with newer equipment perform better environmentally (once other factors are accounted for).

Education promotes clean production. Plants with more highly educated workers show significantly better environmental management efforts and performance.

This paper - a product of the Development Research Group - is part of a larger effort in the group to understand the determinants of environmental performance in developing countries. The study was funded by the Bank's Research Support Budget under the research project The Economics of Industrial Pollution Control in Developing Countries (RPO 680-20).