Essays on Environmental Aspects in North-South Economic Relations

• Aufsätze über Umweltaspekte in Nord-Süd Wirtschaftsbeziehungen

Krings, Hanna; Lorz, Oliver (Thesis advisor); Lontzek, Thomas S. (Thesis advisor)

Aachen (2017)
Dissertation / PhD Thesis

Dissertation, RWTH Aachen University, 2017

Abstract

Environmental consequences of the high standard of living in developed nations or of the economic engagement of companies based in industrialized countries are often born by the developing countries of the world. In three essays two different aspects of environmental consequences of North-South Economic Relations are analyzed. The first two essays jointly enhance the existing literature on the impact of resource extraction, conducted by the North, on the local environment of the South. With the help of a theoretical model the first essay determines South’s local environmental quality in the context of a resource extraction contract in dependence of the democratic institutions in the host country. The quality of South’s democratic institutions indicate the risk of expropriation as well as the degree to which the South internalizes environmental harm in the model. Meanwhile, the quality extraction technology provided by the North varies in marginal resource extraction costs as well as marginal pollution. Combining these various effects, the theoretical model cannot determine a unique impact of an improvement in democracy on the environment. The consecutive numerical simulation of three distinct cases suggests, however, that despite these contradicting forces environmental quality always benefits from improvements in democracy. The empirical investigation of the second paper supports this finding by showing that the level of the host country’s democracy determines the extent of deforestation associated with oil drilling in a global cross-country comparison. The study reveals vast differences across countries in the amount of forest clearance due to oil drilling in the closest vicinity to oil wells. Making use of a quasi-natural experiment, difference-in-difference regressions identify the level of democracy as determining factor for the degree of deforestation due to oil drilling. While the discovery of oil in countries with high democracy scores is associated with clearance of 35% of the immediate vicinity of an oil well within ten years, the clearance of the forests is twice as high in countries with low democracy scores. Interestingly, the level of forest clearance does neither differ systematically with the type of the operating company nor with the democracy score of the operating company's home country. Furthermore, income per capita in the oil country does not seem to be the driving force behind the cross-country variance. In the third essay, trade flows of second-hand electronic goods directed from the North to the South are detected and the consequential energy consumption is estimated. The essay provides descriptive statistics which make the case of industrialized countries exporting lower valued electronic goods to developing countries. Supported by anecdotal evidence, this suggests that second-hand electronic goods are exported to the global South. Applying two-stage-least squares regressions with a gravity equation instrumenting for trade volumes in the first stage, a subsequent increase in the consumer group is found to be statistically significant for African countries leading to an overall increase in worldwide energy consumption.