The effect of exports, foreign direct investment, and formal linkages with foreign companies on the environmental performance of companies in Bosnia and Herzegovina

Abstract

This dissertation is aimed at contributing to recent literature concerning environmental management performance by shedding light on motives and barriers that affect the environmental behaviour of companies and by discussing the importance of external and internal factors that influence the environmental performance of manufacturing enterprises. Specifically, the empirical analysis investigates how the transfer of technology and knowledge, facilitated by market liberalisation, influences environmental protection at the level of companies. Focusing on manufacturing companies in pollution-intensive industries in Bosnia and Herzegovina, the study (1) relies on qualitative analysis to develop the conceptual model and to identify some of the key drivers that influence environmental practices, and (2) employs quantitative methods to explore the impact of exports, foreign ownership, and foreign market linkages on the environmental performance of manufacturing enterprises. Findings reveal a strong relationship between market liberalisation and environmental performance of companies not necessarily enhancing environmental protection. Particularly, the obtained results highlight the importance of exports to the EU, while formal partnerships with foreign enterprises is not found to positively impact companies’ environmental performance. The results contribute to recent literature that renders support to the hypothesis that foreign market linkages contribute to improved environmental performance, mainly through exports amid adverse effect suggested for the backward linkages depicted in formal linkages with foreign companies examined in this research. Overall conclusions lead to prevalence of Pollution Heaven Hypothesis in the specific context of less advanced transition economy. The research embarks from previous literature in that it sheds light on the role of formal partnerships with foreign entities in influencing companies’ behaviour. Though these linkages are not found to contribute to the improvements in environmental management exhibited through econometric analysis, qualitative analysis substantiates support to proposition that formal partnership does play important role in improving environmental management performance via technology transfer, associated with the adoption of cleaner technologies and the introduction of more sophisticated management practices, including better environmental management practices. Specifically, the results of empirical models reveal significant negative effects of differentiated types of formal partnerships on environmental management performance. The results highlight limited importance of the vertical integration of Bosnia and Herzegovina’s manufacturing enterprises into foreign market structures and industrial value-added chains, when it comes to environmental protection. Finally, the study finds significant negative impact of foreign ownership on environmental management performance, which seems at odds with theoretical propositions suggesting superior capabilities of multinational companies, and provides strong evidence that legitimize environmental risks associated with multinationals that exploit differences in environmental stringency across countries. In addition to exploring the determinants of environmental management performance, this dissertation investigates the importance of environmental management in enhancing the competitiveness of manufacturing enterprises and its significance in exporting products from pollution-intensive industries to the European Union market in particular. The results highlight the significance of international environmental standards in explaining the export performance of manufacturing enterprises. Finally, this dissertation contributes to recent literature by presenting new knowledge regarding companies’ environmental behaviour, with important insights into the environmental management practices of manufacturing companies, specifically in the context of pollution-intensive industries and transition market economies. In regard to the latter, the qualitative analysis of this research explores data and information that help us comprehend specificities related to important aspects and dimensions that constitute environmental management performance, and it also helps identify motives and barriers that drive or inhibit the introduction of and/or improvements of environmental management practices. The study highlights the importance of understanding both motives and barriers to environmental management adoption, identifying financial constraints and human resource shortages as critical obstacles. The results of the dissertation offer valuable insights for policymakers and businesses, pointing to the relevance of targeted government intervention aimed at fostering environmentally friendly collaboration between companies, removing obstacles to improving environmental management performance and engaging in strategic approach to attract foreign direct investment to avoid adverse effects on the environment.