Assessing participation in voluntary environmental programmes in the developing world: the role of FDI and export orientation on ISO14001 adoption in Thailand

Abstract

Empirical assessments of the determinants of firm participation in Voluntary Environmental Programmes (VEPs) in the developing world are largely absent from the environmental regulation literature, leaving a number of important factors unique to such countries unexplored. This article examines these factors, namely the roles played by Foreign Direct Investment (FDI) and export orientation, in addition to factors deemed important in the industrialized world context to the problem of ISO14001 adoption in one developing nation, Thailand. We make use of unique primary data from 494 firms, and focus on three important industries, the resource-based food and beverages industry, the labour-intensive textiles and wearing apparel industry, and the more high-technology electronics and electrical appliances industry. We find that FDI plays a role in ISO14001 adoption, especially FDI from Organization for Economic Co-operation and Development (OECD) and ISO14001-rich countries. Other important determinants include firm size, experience with ISO9000, and production of intermediate products. Firms faced with fewer obstacles to environmental improvements such as those facing lower costs, having more understanding of the procedure, and with greater access to the appropriate technology are also more likely to adopt ISO14001.

Keywords:

• ISO14001
• voluntary environmental programmes
• firm participation
• foreign direct investment
• Thailand

JEL Classification::

• L15
• L21
• L50
• Q56
• Q56

Acknowledgements

The authors would like to thank the Economy and Environment Program for South East Asia (EEPSEA) for funding the data collection phase of this research.

Notes

¹ For all three industries, a total of 311 firms have ISO14001, while the total number of registered firms in all three industries is 57 039. Thus, the ratio of ISO14001 to non-ISO14001 firms is less than 0.6%.

² These measures are similar to the measure adopted by Christmann and Taylor (2001), Dasgupta et al. (2000), and Henriques and Sadorsky (2006). The percentage of export sales to total sales have also been used to proxy the importance of export markets (Nakamura et al., 2001). However, in order to allow for comparisons between the effects of FDI and export orientation, we decided to use similar measures for both.

³ The number of workers the firm employs is a proxy for firm size that has often been used in the existing literature (e.g. Arora and Cason, 1995; Nakamura et al., 2001; Prakash and Potoski, 2007). This article also adopts this measure partly here to conform with the existing literature and partly because firms are more likely to provide information on how many people they employ as opposed to other measures of firm size such as the firm's registered capital or the value of its assets.

⁴ Product type is used to measure the influence of different types of buyers of products. This article follows Khanna and Damon (1999) in using a binary variable to proxy the product's proximity to final consumers. Other papers have used advertising expenditures to proxy the firm's contact with final consumers. However, since many firms in Thailand are exporting firms and many are subsidiaries of MNCs, spending on local advertisements is not a good proxy for contact with final consumers.

⁵ This is similar to the methods adopted in Ervin et al. (2008), although both variables used here were not re-scaled to be between 0 and 1.

⁶ Results for the endogenous switching models are available upon request from the authors.

⁷ The official did add, however, that ISO14001 firms would still be subjected to inspections should complaints be made against them.