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Eco‐Labeling and Stages of Development
Author(s) -
Basu Arnab K.,
Chau Nancy H.,
Grote Ulrike
Publication year - 2003
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00188
Subject(s) - openness to experience , economics , enforcement , consumption (sociology) , developing country , trade barrier , point (geometry) , production (economics) , willingness to pay , international economics , international trade , microeconomics , economic growth , psychology , social psychology , social science , geometry , mathematics , sociology , political science , law
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.