Does the private sector help or hurt the environment? Evidence from carbon dioxide pollution in developing countries

How does the nature of enterprise ownership affect the environment in an economy? Conventional wisdom and theoretical conjectures are split on this important question. In this paper we estimate a reduced-form, random-effects model using data from 44 developing countries over nine years (1987-95) to study for any systematic empirical relationship between the relative level of private sector involvement in an economy and the environmental performance of the economy in terms of its emission of industrial carbon dioxide. We control for both observed and unobserved crosscountry heterogeneity along various institutional and structural dimensions such as the scope of financial market, industrial sector composition and level of foreign direct investment. The regression results indicate that the higher the degree of private sector involvement in a developing economy, the lower is its environmental degradation. In addition, its environmental degradation is likely to be further reduced in presence of a well-functioning domestic capital market and through increased participation by developed economies in its private sector development. (C) 2001 Elsevier Science Ltd. All rights reserved.