Productivity, capital intensity, and ISO 14001 adoption: Theory and evidence

• Date: 01 February 2019
• Author: Bin Ni
• DOI: http://doi.org/10.1111/rode.12547
• Published date: 01 February 2019

REGULAR ARTICLE

Productivity, capital intensity, and ISO 14001

adoption: Theory and evidence

Bin Ni

Faculty of Economics, Hosei University,

Tokyo, Japan

Correspondence

Bin Ni, Faculty of Economics, Hosei

University, 4342 Aiharamachi, Machida,

Tokyo 194-0298, Japan.

Email: jiadaniel@hotmail.com

Abstract

The determinants of ISO 14001 adoption have been con-

sidered to fall into two categories: external pressure from

environment-oriented stakeholders or customers and inter-

nal need due to expected future benefits. In this study,

we further elaborate the mechanism underlying firms’

adoption of the standard by investigating the inter-rela-

tionship among firms’productivity, capital intensity, and

decision making regarding adoption. Applying a general

equilibrium model, we show that under optimal condi-

tions, highly productive firms can benefit more from

adoption. Moreover, technological advancements poten-

tially drive up firms’capital intensity and this positively

affects their incentive for adoption. The empirical practice

using firm-level data in Vietnam verifies our predictions

with robustness. In addition, we find that the phe-

nomenon outlined above becomes even more obvious in

the manufacturing sectors.

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INTRODUCTION

Owing to the rising awareness of environmental protection, there is growing interest in the determi-

nants of the adoption of ISO 14001, a voluntary environmental management program. Research on

external factors indicates that pressure from environmentally conscious customers plays an important

role in firms’adoption of ISO 14001 (Nishitani, 2010). On the other hand, internal determinants such

as firm size, the status of having a quality management system, and the market scope of the industry to

which the firm belongs are shown to be important (Arimura, Hibiki, & Katayama, 2008; Arimura, Dar-

nall, & Katayama, 2011; Nakamura,Takahashi, & Vertinsky, 2001; Ilch, Mori, & Aoyagi-Usui, 2002).

Nevertheless, these studies attempt to identify the determinants of ISO 14001 adoption from a rel-

atively objective perspective. From the viewpoint of firms themselves, it is crucial to establish

DOI: 10.1111/rode.12547

Rev Dev Econ. 2019;23:395–414. wileyonlinelibrary.com/journal/rode © 2018 John Wiley & Sons Ltd

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systematic incentives to incur substantial costs in adopting this standard when it is voluntary rathe r

than compulsory. More specifically, what is the point at which firms begin to think about adoption?

It is natural to assume that when firms are technologically struggling, they generally cannot afford

additional amounts of money on self-regulated environmental activities. In other words, firms that

are technologically advanced are more likely to engage in environmental protection activities. In

fact, recent studies such as Levinson (2009) and Shapiro and Walker (2015) have shown a negative

relationship between firm productivity (technology) and pollution intensity in the United States.

Following this logic, we focus on the relationship between firms’initial technology level and

their participation rate in the voluntary environmental program. Drawn from firm-level survey data

in Vietnam, Figure 1 indicates the difference in total factor productivity (TFP) among various

groups of companies prior to ISO 14001 adoption. As can be seen, the average TFP for ISO 14001-

adopting firms is higher than that for non-adopters ones. Consistent with previous studies, it appears

that the heterogeneity in TFP is an important determinant in firms’adoption of the standard.

TABLE 1 Statistical Summary

Variable NMean Std. dev. Min Max Definition

liquid 28,274 19.95423 26.67161 0 100 treated liquid waste/total liquid

waste (%)

solid 28,274 23.00456 24.83821 0 99.9001 treated solid waste/total solid

waste (%)

total_employment 28,274 236.2577 873.1979 1 61297 number of employees at the

beginning of the year

ISO14001 28,274 0.058216 0.2341556 0 1 whether the firm has ISO

14001

FDI_capital_share 28,274 17.57954 37.33238 0 100 foreign capital/total capital (%)

capital_labor_ratio 28,274 167.0986 1096.249 0 98623.28 ratio of capital/total

employment

profit before tax 28,274 6271.221 80387.85 −862949 6512972 profit before tax for the main

business (millions of dongs)

food_manufacturing

dummy

28,274 0.1333734 0.3399839 0 1 if the firm is in the food-

manufacturing industry, the

dummy equals 1

manufacturing dummy 28,274 0.5108934 0.4998902 0 1 if the firm is in the food-

excluded-manufacturing

industry, the dummy equals 1

totalcost_environment 28,274 1199.974 120352.4 0 20100000 total costs for environmental

protection (millions of dongs)

waste_department

dummy

28,255 0.2725535 0.4452809 0 1 whether the firm has

environmental protection

department

environmental_system 28,268 0.2772747 0.4476612 0 1 whether the firm carries out

environmental management

system

environmental_standard 28,265 0.2619848 0.4397222 0 1 whether the firm meets

requrements of environmental

standard

Source: General Statistics Office, Vietnam

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