Agricultural Economics 31 (2004) 135–147

www.elsevier.com/locate/agecon

On export rivalry and the greening of

agriculture—the role of eco-labels
Arnab K. Basua,1, Nancy H. Chaub,2, Ulrike Grotec,*
a
Department of Economics, College of William and Mary, Williamsburg, VA 23187, USA
b
Department of Applied Economics and Management, Cornell University,
Ithaca, NY 14853, USA
c
Center for Development Research (ZEF), University of Bonn,
Walter-Flex-Str. 3, D-53113, Bonn, Germany

Abstract

Why do some countries have eco-labelling programs and others do not? In this paper, we provide both theoretical arguments
and empirical evidence suggesting that the answer to this question can shed new light on three questions that have taken center-
stage in the trade and environment debate: (i) does trade exacerbate the exploitation of the environment; (ii) are countries
competing in export markets engaged in a race to the bottom in environmental performance; and (iii) do market-based
environmental instruments benefit the rich and hurt the poor?
# 2004 Elsevier B.V. All rights reserved.

JEL classification: F1; O1; O3

Keywords: Eco-labelling in agriculture; Export rivalry; Strategic complementarity

1. Introduction of eco-labelling is becoming evident in both industrial

Eco-labelled products provide consumers with
information about the environmental externalities
associated with the production and consumption
processes. The adoption of eco-labels has rapidly
grown worldwide, and the prevalence of the practice
* Corresponding author.
E-mail addresses: akbasu@wm.edu (A.K. Basu),
hyc3@cornell.edu (N.H. Chau), u.grote@uni-bonn.de (U. Grote).
1 4
Tel.: +1 757 221 1318.
2
Tel.: +1 607 255 4463.
and agricultural sectors.3 This paper focuses on the
adoption of labelling in the agricultural sector for two
reasons. To begin with, labelling initiatives in the
agricultural sector clearly preceded similar efforts in
the industrial sector.4 Second, and in the context of the
3
The German Blue Angel label, the Canadian Environmental
Choice Program, the EcoMark in Japan, the White Swan label in the
Nordic Countries, and the Green Seal of the United States, are
examples in industrial production.
For example, the earliest agricultural labelling initiatives were
established as early as 1924 in Western Europe.

0169-5150/$ – see front matter # 2004 Elsevier B.V. All rights reserved.
doi:10.1016/j.agecon.2004.09.002
136 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147
development consequences of market-based environ-
mental initiatives, eco-labelling in agriculture has
become a contentious issue. Indeed, a potential
conflict of interests between developed and develop-
ing countries arises, at least in part, because of the
differential degrees of dependence on agriculture for
the purposes of export earnings and job creation in
these two groups of countries. As such, the argument
goes that the market access consequence of eco-
labelling may have a disproportionate impact on
producers in developing countries.
The debate surrounding eco-labelling in the
context of international trade can be more succinctly
summarised under three main themes. First, eco-
labelling represents a potential market-based policy
response to the threat of environmental exploitation
in the face of increasing international trade (OECD,
1997a, 1997b; WTO–CTE, 1997; Basu and Chau,
2001). A question that naturally arises is whether
countries and/or producers that practice green
production methods are indeed favourably selected
in the set of countries that have adopted eco-
labelling. Relatedly, trade competition and the
need to cut cost have led to concerns regarding
the threat of a ‘race to the bottom’ (Basu et al., 2003;
Chau and Kanbur, 2000). In this context, eco-
labelling provides a potential market-based alter-
native to regulatory standards aimed at levelling the
playing field. Precisely since the adoption of eco-
labelling is voluntary, however, an important ques-
tion remains as to whether observed adoption
patterns reveal indication of a ‘race’—in the sense
that adoption decisions across countries are mutually
dependent—and whether observed adoption time
patterns in fact reveal a move towards vicious
interdependence.
A third theme in the eco-labelling debate involves
the North–South dialogue regarding the threat of
increasing disparities between the rich and the poor
(Basu and Chau, 1998; Basu et al., 2003). By its very
nature, eco-labelling takes advantage not just of a
country’s cost advantage, but potentially also of its
‘reputational’ comparative advantage in a segmented
market where the credibility of labelling programs is
key to the determination of the green premium, and
hence, the terms of trade. Therefore, the question that
arises here is whether eco-labelling can exacerbate
income disparities between developed and develop-
ing countries via one or more of the following routes:
(i) the lack of technological know-how and the
inability to shoulder the costs involved in implement-
ing eco-labelling programs; and (ii) the inherent
disadvantage that developing countries may be
confronted with when industries in developed and
developing countries are faced with different green
premia.
These observations accordingly serve as the
motivation of this paper, and our focus on tracing
out the adoption pattern of eco-labelling programs.
Our approaches to understand the role of export rivalry
in the adoption of green agricultural production
methods in this paper are two-fold. We begin by
proposing an analytical framework to examine the
economic incentives to initiate eco-labelling. The
framework entertains export rivalry in a multicountry
setting, and yields a set of theoretical implications in a
subgame perfect Nash equilibrium, highlighting: (i)
the selection criteria of countries that adopt eco-
labelling; and (ii) the endogeneity of labelling
incentives and the welfare consequences of observed
labelling initiatives.
The second approach undertaken in this paper is
closely related to the first, and presents an empirical
investigation of the determinations of the time to
adopt eco-labelling. The objectives are to empirically
verify both the relative importance and significance
of non-trade and trade related factors associated
with the decision to adopt eco-labelling. As the
analysis unfolds, we will also present the findings of
our empirical estimation of whether systematic
divergences in the industry-level green premium
between developed and developing countries may
be inferred from the time pattern of adoption
decisions.
2. The basic model
We consider a setup in which producers in N
countries are engaged in the production of two goods:5
a homogeneous numeraire Yj, j = 1 . . . N; and an
agricultural output Xj. The numeraire commodity
employs a composite input, Ljy with Yj = vjLjy , where
5
A more detailed description of the model is available from the
authors upon request.
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147
vj denotes the marginal and average product of input
Ljy .
2.1. Production
Production of the agricultural output can be
accomplished via either (i) an environmentally sound
production technology, Xej ; or (ii) a baseline produc-
tion technology, Xoj . More specifically, let there be Mj
number of competitive agricultural producers in
country j. Agricultural production also employs the
composite input, Ljx as input; and final agricultural
outputs produced via the two techniques are given
by:
! Z ð1þgj Þ1=a
j a  a
j Lx
1 þ ð1 þ g Þ
Xe ¼ ; Xoj ¼ Ljx ;
a "
1=1 a # !
dF ðaÞ
where a 2 (1, 1) is producer-specific, and parame-
terises the cost of adopting the environmentally
friendly production technique. Also, let the cumula-
tive distribution function Fj(a0 ) denote the fraction of
producers in country j with a  a0 , and with a, a0 2 (1,
1).
The decision problem of producers is a simple two-
stage problem. In the first-stage, individual producers
decide to employ one of the two production
techniques. Conditional on the choice of production
techniques, producers employ inputs to maximise
profits in the second-stage.
2.2. Consumption and the green premium
The utility of a representative consumer in country
j, Uj(Djx ,dyj ), takes as arguments the consumption of
the homogeneous numeraire dyj , along with an index of
effective units of good x consumed, Djx , with
log U j ðDjx ; dyj Þ ¼ bj log Djx þ ð1 bj Þ log dyj , where
bj 2 (0, 1) denotes the share of consumer expenditure
devoted to the consumption of the agricultural output.
Let deji be the quantity demand for the eco-friendly
output originating from country i, and doj be the
quantity demand for the baseline output, effective
consumption Djx is given by:
X
N X
N
Djx ¼ ð1 þ gi Þdeji þ doj :
i¼1 i¼1
137
Clearly, for demand to be positive for both labelled
and unlabelled products originating from each country
i, it must be the case that:
pi‘ 1 þ gi pi‘
¼ ; ¼ 1 þ gi ; i; k ¼ 1; . . . ; N: (1)
pk‘ 1 þ gk pu
The green premium as defined in Eq. (1) above
can be used to show that aggregate agricultural
producer revenue in the presence of eco-labelling in
country j depends on the green premium in a
predictable way:
  a a 1=1 a
Qje ¼ pu M j j
v
j 1=1 a
1
1 1=1 a 1 j
a 1 þ gj
 ðpu Þ1=1 a g j ð1 þ Gj Þ:
In addition, revenue in the absence of labelling
is given by Qjo ðpu Þ ¼ ðpu Þ1=ð1 aÞ g j, where g j 
M j ða=vj Þa=ð1 aÞ parameterises the production cost
of country j. On the other hand, puGj is an
industry-level green premium, and represents the
increase in industry-level revenue, holding pu con-
stant, that may be expected subsequent to eco-
labelling. Note, in particular, that the industry-level
green premium Gj depends on a demand-side and a
supply-side effect. On the demand-side, the higher
the country-specific unit green premium 1 + gj, the
higher will be the revenue gains in the presence of
eco-labelling. Indeed, it can be readily verified
that Gj > 0 if and only if gj > 0. Meanwhile, the
supply-side response depends directly on the cost
distribution among producers in country j, Fj. Speci-
fically, countries in which producers are more
concentrated along the lower end of the cost
distribution are more likely to benefit from eco-
labelling.
2.3. General equilibrium and the incentives
to adopt eco-labelling
Let I be the set of all countries in which an eco-
labelling program is in place, and I i be the set of all
138 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147

countries in I but country i. With consumer income The third term in Eq. (2) denotes the magnitude and
(aggregate earnings of composite input owners) equal the nature of peer effects between the N countries. To
to vjLj in country j, aggregate world demand for the this end, linearise
P this last P termi of Eq. (2),
agricultural output is equal to total producer revenue if log 1 þ g j = i 2 I j g G þ
i i
i 6¼ j g , so we have;
and only if: !
!1 a gj
PN j j j log 1 þ P P
i i i
j¼1 b v L i 2 I j g G þ i 6¼ j g
pu ðIÞ ¼ P PN j : !
j j
j2I g G þ j¼1 g gj
 log 1 þ P i
By inspection, the price of eco-unfriendly products i 6¼ j g
0 !1
is strictly decreasing in the number of countries that
gj @ X i gi A:
have instituted an eco-labelling program, as long as P i
G P i
Gj > 0 for all i 2 1. i 6¼ j g i2I j i 6¼ j g
In addition, let W be the sum total of consumer
expenditure on agriculture in the N countries with It follows, therefore, that the strategic incentive for
P
W N j¼1 b j vj Lj , and as cj is the fixed cost required country j to adopt an eco-labelling program depends
to put in place a credible eco-labelling program, on the interplay of three effects. In particular, adoption
aggregate producer profits rise with market-based is more likely: (i) the larger the production cost
voluntary green production via eco-labelling, taking as advantage
P of country j in agricultural production
given the adoption decisions of the rest of the N 1 ðg j = i 6¼ j g i Þ; (ii) the higher the cumulative number
countries, if and only if: of countries that have currently adopted a labelling
program I j, so long as Gi > 0, and finally; (iii) the
! higher the industry-level green premium of those
c=ð1 aÞ countries g i Gi that already have a labelling program in
log Gj  log
Qjo ðpu ðI j ÞÞ
! premium, Gi, the larger will be the added incentives
c=ð1 aÞ
log 1 for country j to adopt. In the context of our analysis,
W Qjo ðpu ðI j ÞÞ
! whether these allegations apply, by examining
gj
þ log 1 þ P i i
P i
: (2)
i 2 I j g G þ i 6¼ j g
As such, the decision to implement an eco-
labelling program reflects a number of factors that are
simultaneously in play. To begin with, the larger the
industry-level green premium Gj, the more likely
it is that the inequality in Eq. (2) is satisfied. In
addition, aggregate output level of country j,
Qjo ðpu ðI j ÞÞ, also plays a key role in the determina-
tion of labelling incentives. First, the larger the output
level in the absence of an eco-labelling program in
country j, Qjo ðpu ðI j ÞÞ, the more able are producers in
country j in shouldering the fixed cost of labelling.
However, and contrary to the first effect, a country
with market share ðQjo ðpu ðI j ÞÞ=WÞ that is suffi-
ciently close to one to begin with may also have little
left to gain from market share rivalry via eco-
labelling.
place. Specifically, the higher the industry-level green
therefore, Eq. (2) also opens up a way of testing
whether developed and developing countries exert
differential influence on the adoption behaviour of
countries that have yet to adopt eco-labelling.6
3. Empirical analysis
In this section, we present the empirical approach
to answer the three questions enumerated at the outset
of this paper. A key issue is how observed incidences
of eco-labelling may reveal information on producers’
perception of the size of the industry green premium.
6
Eq. (2) can be used to determine the Nash equilibrium welfare
implications of eco-labelling. These findings are available upon
request and show in particular, that the adoption of eco-labelling
in a Nash equilibrium is a necessary, though not sufficient condition
for producer welfare to improve, relative to a regime where eco-
labelling is not a viable option for all countries engaged in export
rivalry.
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147
To this end, we refer to the right hand side of Eq. (2),
which suggests the inclusion of regressors to capture
and control for (i) the cost of eco-labelling; (ii) scale
effects; (iii) production cost; and (iv) peer effects.
The dataset that we assembled accordingly con-
tains macro-economic, environmental, eco-labelling,
output, bilateral and aggregate trade information on
the food industry7 of 66 countries between 1976 and
1999. To begin with, the data makes use of the
implementation year of food industry related eco-
labelling programs, if an eco-labelling program has
been put in place prior to or during 1999 (Table 1). The
eco-labelling information is obtained via an internet
search and through secondary literature.8
Since our macro-economic and environmental data
are national in scope, and our trade and production
data track food industry performance for each country,
we pay particular attention to three issues while
collecting the eco-labelling data. First and foremost,
we scrutinize the product coverage of each national
labelling program. For example, the Hungarian Eco-
labelling Program covers a whole range of products
and commodities but specifically excludes food
products. Similarly, Ecolabelling Scheme Indonesia
is concerned with the sustainability of tropical timber.
Both of these eco-labelling schemes, while national in
scope, has little to do with agriculture or the food
industry and are thus excluded from the data.
Second, we focus solely on labelling programs that
are national in scope, and do not include labelling
programs that are carried out by international or sub-
national organisations. For example, Better Banana
Project label, earlier also known as the Eco-OK label,
invites the participation of banana growers throughout
7
Food industry level output, along with bilateral and aggregate
food industry trade follows ISIC 3-digit classification code 311, and
includes slaughtering, preparing, and preserving meat; manufacture
of dairy products; canning, and preserving of fruits and vegetables;
canning, preserving, and processing of fish crustacea and similar
foods; manufacture of vegetable, and animal oils, and fats, grain
mill products; manufacture of bakery products, sugar factories, and
refineries; manufacture of cocoa chocolate, and sugar confection-
ery; manufacture of food products not elsewhere classified.
8
This information allows us to ascertain whether each of the 66
countries either initiated their own labelling scheme or certified their
export products by external certification agencies. For the 30 coun-
tries with eco-labelling programs, we further identified the year
indicating when labelling schemes or certification were first adopted
in the agricultural sector.
139
Central America including Costa Rica, Ecuador, El
Salvador, Guatemala, Honduras, Panama and Peru.
Certification is administered collectively by the
Rainforest Alliance. Meanwhile, sub-national label-
ling programs also prevail in countries, such as the
United States. The Core Values Program for Northeast
Apple Growers, Organic Growers of Michigan, and
the IPM label in New York State are but a few of the
many examples.
Finally, we focus on labelling programs that
encompass a whole range of agricultural and/or food
industry commodities. For example, the Chinese
Greenfood Standard has certified over 1000 different
varieties of products to date, ranging from raw meat to
processed food products and beverages.
Figs. 1 and 2 respectively plot the Kaplan–Meier
estimates of the survival likelihood—the likelihood
that a country has not yet adopted eco-labelling as a
function of time elapsed since 1976. As may be
expected, developing countries are uniformly more
likely to be late adopters of eco-labelling. Towards the
end of the sample period, the survival probabilities for
developing and developed countries are respectively
about 0.75 and 0.20. Fig. 2 shows that net exporters as
a group essentially overtook net importing countries in
their likelihood of adoption.9 This is despite the fact
that a significant number of net importing countries
have already adopted eco-labelling in agriculture at
the beginning of the sample period.
To capture the fixed (administrative) cost of eco-
labelling, cj is taken to depend on: (i) the stage of
development of an economy—real gross domestic
product per capita, 1976–1999 (World Bank, 2001a);
(ii) the existing level of food industry environmental
damage—average food industry water pollution
(share of total BOD emission) (World Bank,
2001a); and/or (iii) the existence of national commit-
ments via multilateral environmental agreements,
such as the Kyoto protocol and Montreal protocol.
To capture the scale effect, our data contain
average pre-labelling food industry total output share
at time t, taken from Trade and Production Database
(World Bank, 2001b). The comparative cost advan-
9
Net exporting (importing) countries are defined as countries
that sustained an annual average of over (less than) 50% of food
industry exports in total food industry trade (imports plus exports)
during the 1976–1999 period.
140 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147

Table 1
Environmental initiatives, stage of development and regional distribution by export orientation
Net exporters Net importers
Country Eco- Montreal Kyoto Developing Regiona Country Eco- Montreal Kyoto Developing Regiona
name label protocol protocol country name label protocol protocol country
Argentina X X X X lac Armenia – X X X eca
Australia X X X – eap Austria X X X – wena
Bulgaria – X X X eca Bangladesh – X X X sa
Canada X X X – wena Bolivia – X X X lac
Chile X X X X lac Cameroon – X X X ssa
China X X X X eap Cyprus – X X – wena
Colombia – X X X lac Egypt, Arab Rep. X X X X mena
Costa Rica – X X X lac Finland X X X – wena
Denmark X X X – wena France X X X – wena
Ecuador – X X X lac Germany X X X – wena
Ethiopia – – X X ssa Greece X X X – mena
Guatemala – X X X lac Hong Kong, China – – – – eap
Honduras – X X X lac Iran, Islamic Rep. – X X X mena
Hungary – X X X eca Italy X X X – wena
India X X X X sa Japan X X X – eap
Indonesia – X X X eap Jordan – X X X mena
Ireland X X X – wena Korea, Rep. X X X X eap
Kenya – X X X ssa Kuwait – X X – mena
Malawi – X X X ssa Latvia – X X X eca
Malaysia – X X X eap Macao, China – – – – eap
Moldova – X – X eca Mexico – X X X lac
Netherlands X X X – wena Morocco – X X X mena
New Zealand X X X – eap Nepal – X X X sa
Norway X X X – wena Pakistan – X X X sa
Peru – X X X lac Panama – X X X lac
Philippines – X X X eap Poland X X X X eca
South Africa X X X X ssa Portugal X X X – mena
Spain X X X – wena Romania – X X X eca
Sri Lanka X X X X sa Singapore – X X – eap
Thailand X X X X eap Sweden X X X – wena
Turkey X X – X eca Trinidad and Tobago – X X X lac
United States X X X – wena United Kingdom X X X – wena
Uruguay – – X X lac Venezuela, RB – X X X lac
17(33) 31(33) 31(33) 24(33) 13(33) 31(33) 31(33) 18(33)
Sources: Author’s compilation.
a
Regions: lac, Latin American and the Caribbean; eap, East Asia and Pacific; wena, Western Europe and North America; ssa, Sub-saharan
Africa; sa, South Asia; mena, Middle East and North Africa; and eca, East and Central Asia.

tage of country j is proxied by the export orientation
of the economy—the average share of total exports to
total food industry trade, 1976–1999 (Trade and
Production database, World Bank, 2001b). Tables 2a
and 2b display the summary statistics of the variables
that capture the stage of development, existing
pollution levels, the scale effect and the comparative
cost advantage in two groups of countries, pre and
post eco-labelling. Consistent with the Kaplan–
Meier survival curves, countries that have instituted
an eco-labelling program during the period (1976–
1999) on average enjoy a higher real income per
capita, and are on average net food industry
exporters. Countries that instituted an eco-labelling
program produce an average of about 3% of the total
food industry output among all the countries included
in our data—more than ten times higher than
countries that do not have an eco-labelling program
in place. Despite their export orientation in food
industry, countries that institute a labelling program
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147
Fig. 1. Kaplan–Meier survival estimates, by stage of development.
appear to have an already relatively low level of food
industry share of total water pollution.
Finally, countries are divided into peer groups
based on a number of criteria. A first peer grouping
is defined based on whether a country is (on average)
a net exporter, or a net importer of food industry
output, during the period 1976–1999. A second peer
grouping takes into account the extent of trade
competition at the bilateral trade level. Specifically,
each country is given a distinct peer group, which
includes the top ten food industry export destinations
of the country. To allow for a finer distinction
between export destinations, we also single out a sub-
peer grouping which includes the top five food
industry export destinations of the country. A final
peer grouping addresses regional influences, and each
country falls into one of a number of regional
groups.10
Based on these peer groupings, the size of the peer
effect for country j at time t is constructed by
computing the weighted cumulative number of
countries in the peer group other than country j, that
have adopted eco-labelling since 1976 till time t 1.
10
These include lac (Latin American and the Caribbean), eap
(East Asia and Pacific), wena (Western Europe and North America),
ssa (Sub-saharan Africa), sa (South Asia), mena (Middle East and
North Africa), and eca (East and Central Asia).
141
TheP weights are taken to be the food industry output
gj= N i
i¼1 g (Eq. (2)) of country j as a share of the total
output of the 66 countries. To compute peer effect
based on bilateral export competition, the top 10
export destinations for each country are identified
based on food industry bilateral trade data. The
weighted cumulative number of these export destina-
tions that have an eco-labelling program in place at
each time t gives wcexdest at time t. The variable
wcexdest5 is similarly constructed based only on the
weighted cumulative number of top 5 export destina-
tions that have instituted an eco-labelling program.
The variables wcreg and wcexdum respectively denote
peer effects when peer groupings are based on regional
differences, and whether a country is a net importer or
a net exporter.
Estimation results
In order to uncover the empirical determinants of
the likelihood of adoption, we work with an empirical
framework that allows us to analyse the data on food
industry eco-labelling illustrated above. The interest
here is to empirically ascertain the likelihood of eco-
labelling. We take the approach of estimating a
proportional hazard model. More specifically, let xjt be
a vector of time-varying explanatory variables, where
t = 1976 . . . Tj, when country j implements an eco-
labelling program.
142 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147

Fig. 2. Kaplan–Meier survival estimates, by export orientation.

Denote the hazard rate at tj—the probability of
adoption when tj years have passed, given that
adoption has not yet taken place—as hðtj jxjt Þ. We
assume a model with proportional hazard (Cox
(1972)), and specify in addition that each of the K
time-varying covariates enter into the determinant of
the hazard rate as follows:
! interpretations of this finding. These include the
X
K
hðtj jxjt Þ ¼ ĥðtj Þ exp bk xjkt (3)
k¼1
where ĥðÞ denotes the baseline hazard function. The
hazard ratio for a unit change in xjkt is thus simply
of similarities that emerge in all of our estimations as
summarised in Tables 3–5.12 To begin with, a higher
real per capita GDP is associated with a higher
likelihood of eco-labelling, as the estimated coeffi-
cients are strictly greater than one, and significant at
the 1 or 5% level. Based on our theoretical discussion
in Section 4, there are a number of possible
possibilities that higher income countries (i) are more
capable of bearing the fixed cost of eco-labelling; (ii)
have in place technologies that are more in line with
the production criteria on which eco-labelling
programs are typically based; and (iii) have higher
expðbk Þ  ð < Þ1. Parameter estimates of bk of the Cox
proportional hazard model are obtained by maximis-
ing a partial log-likelihood function (Kalfleisch and
Prentice, 1980), and has the virtue that the estimation
procedure places no restrictions on the unknown
functional form of the baseline hazard function.
Empirical estimates of exp ðbk Þ are presented in
three tables.11 We first turn to a discussion of a number
11
Note that the number of incidences of eco-labelling ultimately
employed in our estimation is 21 as comparable pre-labelling data
on output share, trade orientation are not available to us. These nine
countries include Austria, Finland, France, Germany, Italy, New
Zealand, Norway, Sweden and the UK, each having established an
eco-labelling program prior to 1976. This leaves a total 57 countries
that are included in our estimation.
industry-level green premia based on perceived or
actual credibility of the eco-labelling programs, once
one is put into place. Clearly, the first two of these
possibilities are relevant to fixed costs considerations
that may naturally put developing countries at a
disadvantage. The third of these possibilities imply a
potentially more contentious problem, that cannot be
solved simply via technological transfers. We will
return to this question in our discussion of the last part
of our estimation results.
12
Each table also reports the log likelihood and Wald Chi-
squared statistics of the estimation. The hypothesis that all of the
estimated coefficients are all equal to one is rejected in all of our
estimations, at significance levels of less than 1%.
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147 143

Table 2a
Trade links and output pre and post eco-labelling
Variable Prea S.D. Postb S.D. NAc S.D.
Real per capita income (US$ 1995 const.) 10299.750 9400.600 13505.990 12103.420 3487.938 4639.820
Food industry export orientation (% export to total food 60.157 21.953 56.469 22.628 48.426 25.143
industry exports and imports)
Food industry export share to US, WE, and JPN 53.378 21.001 56.622 20.593 47.567 24.983
(% export to US, WE, JPN to total export)
Food industry output share (% total world output) 3.234 6.927 3.602 6.997 0.222 0.250
Food industry water pollution (% total BOD emission) 44.203 10.298 43.707 9.955 51.046 16.056
a
Mean country annual averages during the pre-labelling periods for countries that instituted a labelling program after 1976.
b
Mean country annual averages during the post-labelling periods for countries that instituted a labelling program after 1976.
c
Mean country annual averages from 1976 to 1999 for countries that never instituted a labelling program.

Table 2b
Export and environmental performance growth
Variable Labellinga NAb
Mean S.D. Mean S.D.
Real per capita Income (% change) 43.083 35.215 14.654 28.955
Food industry export orientation (% change) 4.777 25.925 13.116 48.184
Food industry export share to US, WE, and JPN (% change) 22.861 90.487 7.716 45.399
Food industry output share (% change) 25.654 35.105 12.853 51.012
Food industry water pollution (% change) 0.655 8.502 4.432 18.202
a
Computed based on pre- and post- labelling averages.
b
Computed based on 1976–1987 and 1988–1999 averages.

A second common feature in our estimations is that
of the existing level of food industry related water
pollution. In particular, all of the estimated coeffi-
cients associated with the existing level of pollution
are strictly less than one, and significant at the 5 or
10% level. Interpreting the degree of food industry,
water pollution as a proxy for the level of monitoring
that may be expected to become necessary once a
labelling program is in place, our findings here are
consistent with the fact the fixed cost of labelling may
be jointly determined by a number of factors. These
include the access to green technologies, along with
the existing degree of departure from environmentally
friendly production practices.
A third common feature relates to the scale effect,
as captured by the food industry output share of a
country. A food industry output squared term is also
included to capture any non-linearity that is suggested
by our theoretical discussion. As should be apparent,
the scale of the food industry has a significant and
positive impact on the likelihood of eco-labelling,
though at a rate that is decreasing with size. Thus, size
matters and matters positively, but only up to a point.
The fourth common feature across our estimates is
the role of comparative cost advantage, accounted for
in our estimations by the share of exports to total trade
in the food industry of each of the countries. In Eq. (2),
comparative cost advantage enters into the determina-
tion of the likelihood of adoption in a positive way, and
our estimation results likewise indicate that the higher
the export share of food industry trade, the more likely
it is that a country adopts eco-labelling. In Tables 3–5,
the estimated coefficients are strictly greater than
unity, and significant at the 1 or 5% level.
As all of the above effects are controlled for, we
now turn to strategic interaction between countries
based on the peer groupings discussed above. The first
set of results is summarised in Table 3. Of these peer
effect measures, however, only two are significant and
greater than unity, indicating that increases in the
144 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147

Table 3
Proportional hazard regression: export destination and export orientation peer effects
Hazard ratios
I II III IV V
*** * *** ***
Real per capita Income 1.00007 1.00004 1.00007 1.00008 1.00006**
0.00002 0.00002 0.00002 0.00002 0.00003
Food industry output share 1.36124*** 1.46222*** 1.37131*** 1.31104** 1.36176**
0.16898 0.19017 0.16523 0.18003 0.19584
Food industry output share-squared 0.99256** 0.99036*** 0.99230** 0.99443 0.99314
0.00362 0.00383 0.00353 0.00404 0.00430
Food industry water pollution 0.95269*** 0.95544*** 0.95300*** 0.95714** 0.96030**
0.01728 0.01734 0.01721 0.01900 0.01958
Food industry exports share 1.05236*** 1.02343*** 1.05383*** 1.04847*** 1.04459**
0.01615 0.01613 0.01546 0.01924 0.01969
wcreg 1.02343*** 1.01666
0.00912 0.01050
wcexdum 0.97687
0.04180
wcexdest 0.99896 1.00042
0.00558 0.00579
wcexdest5 1.06044*** 1.04942**
0.02269 0.02290
Number of observations 1089 1089 1089 1089 1089
Incidences of eco-labelling 21 21 21 21 21
Log likelihood 63.249 61.772 63.184 60.659 59.962
Wald Chi-squared 35.220 33.400 46.830 47.840 48.500
Prob > Chi-squared 0.000 0.000 0.000 0.000 0.000
Robust standard errors (Lin and Wei, 1989) in parenthesis.
*
Significant at the 10% level.
**
Significant at the 5% level.
***
Significant at the 1% level.

weighted cumulative number of countries in these peer
groups are associated with a higher likelihood of eco-
labelling. Respectively, these are the regional peer
effect, wcreg, along with the bilateral export destina-
tion peer effect for the top five exporting destinations,
wcexdest5. In addition, when regional and bilateral
export destination peer effects are both included
(Column Vof Table 3), the bilateral export destination
peer effect is the only peer effect variable that
continues to be significant. Based on our theoretical
discussion, these findings may be interpreted as an
indication of strategic complementarity between
countries, and particularly those that are engaged in
trade competition. Thus, notwithstanding the argu-
ment that international trade tends to encourage the
exploitation of the environment, resulting in the
possibility of a race to the bottom as countries engage
in minimising costs, our findings here suggest the
possibility of a reversal of these tendencies in the
context of eco-labelling. In addition, rather than a race
to the bottom, our findings suggest that a race to the
top may be a more appropriate characterisation in the
context of food industry eco-labelling initiatives.
Table 4 turns to an examination of the role of
multilateral environmental commitments, such as the
Kyoto Protocol, and the Montreal Protocol, in
determining the likelihood of ‘voluntary’ mechanisms
towards the greening of agriculture, as is the case with
eco-labelling. Two sets of regression results are
shown, one with all the basic variables and the
ratification of the two multilateral environmental
agreements, but without the peer effects, and a second
set includes the export destination peer effects. The
variables Kyoto and Montreal are both binary
variables that take on a value of one (zero) at time t
for country j if the corresponding multilateral
environmental agreement is (is not) ratified by country
j at any time s < t. Our findings indicate that neither of
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147 145

Table 4
Proportional hazard regression: multinational environmental agreements
Hazard ratios
I II III IV V VI
Real per capita income 1.00007*** 1.00006*** 1.00008*** 1.00007*** 1.00005* 1.00006**
0.00002 0.00002 0.00002 0.00002 0.00003 0.00003
Food industry output 1.36084*** 1.30577* 1.31269* 1.28632* 1.33169* 1.36262**
0.16971 0.19084 0.18041 0.20233 0.21784 0.19582
Food industry output-squared 0.99257** 0.99380 0.99441 0.99495 0.99375 0.99314
0.00363 0.00425 0.00404 0.00457 0.00484 0.00430
Food industry water pollution 0.95263*** 0.94961*** 0.95747** 0.95415** 0.95660** 0.96057**
0.01718 0.01768 0.01913 0.01913 0.01954 0.01970
Food industry exports share 1.05236*** 1.05044*** 1.04843*** 1.04844*** 1.04464** 1.04457**
0.01616 0.01538 0.01920 0.01857 0.01889 0.01968
wcreg 1.01545 1.01657
0.01032 0.01053
wcexdesttop10 0.99891 0.99895 1.00035 1.00037
0.00557 0.00579 0.00595 0.00579
wcexdesttop5 1.06122*** 1.05521** 1.04479** 1.04999**
0.02278 0.02372 0.02370 0.02304
Kyoto 1.08453 0.63127 0.72182
0.89143 0.52041 0.58616
Montreal 3.54972 2.95939 2.82098
3.00581 2.43227 2.21605
Number of observations 1089 1089 1089 1089 1089 1089
Incidences of Eco-labelling 21 21 21 21 21 21
Log likelihood 63.248 61.849 60.638 59.713 59.083 59.951
Wald Chi-squared 37.950 47.210 47.820 62.750 62.460 48.460
Prob > Chi-squared 0.000 0.000 0.000 0.000 0.000 0.000
Robust standard errors (Lin and Wei, 1989) in parenthesis.
*
Significant at the 10% level.
**
Significant at the 5% level.
***
Significant at the 1% level.

the two multilateral agreements appears to have
significant influence on the likelihood of adoption.
Indeed, in the four estimation results displayed in
Table 4, none of the estimated coefficients associated
with the two Protocols are significant. Comparing
these findings with the data presented in Table 1, the
result should perhaps not be all that surprising. In
particular, while eco-labelling is prevalent mostly in
developed countries, and/or in countries that are
export oriented, the ratification of the two multilateral
environmental conventions is almost universal.
As discussed in Section 4, countries that perceive a
higher industry-level green premium are more likely
to have a stronger influence on the labelling decision
of other countries. This analytical finding suggests one
possible way of trying to ascertain whether developed
and developing countries may have differential
industry-level green premia, as has been popularly
argued in the North–South debate surrounding the
potential distributional consequences of eco-labelling.
To this end, we construct three additional variables
based on the peer effect variables established above.
wcdevexdum, wcdevexdest, and wcdevreg, respec-
tively denote the weighted cumulative number of
developing countries that have adopted a labelling
program respectively in the three peer groupings. The
inclusion of each of these three additional variables
into the estimation thus allows the strategic impact of
labelling programs initiated in developing countries to
be singled out. Accordingly, if the estimated
coefficient of these new variables are less than
(greater than) unity, we may infer that the industry-
level green premia of developing countries are strictly
lower (higher) than that of developed countries.
146 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147

Table 5
Proportional hazard regression: industry premium differentials
Hazard ratios
I II III
** ***
Real per capita income 1.00005 1.00006 1.00008***
0.00002 0.00002 0.00002
Food industry output 1.42285*** 1.43480*** 1.32569**
0.18607 0.18385 0.17711
Food industry output-squared 0.99099** 0.99112** 0.99420
0.00389 0.00367 0.00389
Food industry water pollution 0.93737*** 0.95553** 0.95482**
0.01664 0.01842 0.01905
Food industry exports share 1.05461*** 1.05781*** 1.04927***
0.01368 0.01461 0.01961
wcreg 1.02342***
0.00960
wcexdum 0.98951
0.03944
wcexdesttop10 1.01314
0.01246
wcexdesttop5 1.05547**
0.02263
wcdevreg 0.47443*
0.20675
wcdevexdum 0.85037
0.17514
wcdevexdest 0.93680
0.04440
Number of observations 1089 1089 1089
Incidences of eco-labelling 21 21 21
Log likelihood 59.245 62.923 60.309
Wald Chi-squared 32.950 50.670 42.510
Prob > Chi-squared 0.000 0.000 0.000
Robust standard errors (Lin and Wei, 1989) in parenthesis.
*
Significant at the 10% level.
**
Significant at the 5% level.
***
Significant at the 1% level.

The results are presented in Table 5. As should be
apparent, all of the estimated coefficients of
developing country peer effects are less than one
(including wcdevreg, wcdevexdum and wcdevexdest).
However, none of the estimated coefficients for
developing country peer effects are significant at
5% or less, with the exception of developing country
peer effect for the regional peer grouping, which is
significant at the 10% level. Returning to our
discussion earlier, having to do with the possibility
that a country’s stage of development may play a role
in determining the perceived credibility of eco-
labelling programs, our findings here would suggest
that at least for the case of food industry labelling,
systematic and/or significant evidence suggesting that
industry green premia respectively of developed and
developing countries diverge in a predictable way has
yet to be found.
4. Conclusion
This paper began with the observation that while
eco-labelling in agriculture has been longstanding in
developed countries in Western Europe, the spread of
this practice is beginning to take hold in developing
countries worldwide. The data that we assembled for
this paper, regarding the time to adoption pattern of
 A.K. Basu et al. / Agricultural Economics 31 (2004) 135–147
eco-labelling programs in 66 countries, reveal further
that food industry export orientation appear to be
correlated with the speed with which countries
implement their own eco-labelling programs.
The theoretical model proposed in this paper
suggests two sets of results, having to do with the
selection criteria of the adoption of labelling, and the
welfare consequences of eco-labelling in a subgame
perfect Nash equilibrium. In terms of selection
criteria, the model suggests that so long as countries
perceive a strictly positive green premium, the speed
of adoption depends on: (i) the fixed cost of eco-
labelling programs; (ii) a scale effect; and (iii) the
comparative cost advantage of the industry in
question. Interestingly, the model also suggests the
likely prevalence of strategic interactions, so that the
decision to adopt by one country depends on the
decision to adopt by other countries. Comparing
producer welfare with and without competition based
on eco-labelling, the theoretical discussion indicates
that while countries that find themselves satisfying
these selection criteria in a subgame perfect Nash
equilibrium are not necessarily made better off,
countries that do not satisfy these selection criteria
will be worse off.
The empirical findings provide a set of possible
answers to the three questions posed at the outset of this
paper, and suggest additional research questions. To
begin with, while production specialisation induced by
international trade may encourage environmental
exploitation when the exportable industry is pollution
intensive, our findings suggest that the export
orientation of an industry can itself be a driving force
that makes the practice of eco-labelling an attractive
option. Meanwhile, with strategic complementarity in
adoption as shown in both the theory and the empirical
discussions of this paper, at least insofar as eco-
labelling in the food industry is concerned, our findings
suggest that quite to the contrary of a ‘race to the
bottom’ may in fact be in play.
Finally, while we find no significant difference
between the industry green premia between developed
and developing countries based on observed patterns
of adoption and strategic interdependence, developing
countries are nevertheless late adopters, due possibly
to the ability to shoulder the cost of having a credible
labelling program. This finding confirms in part the
concerns regarding the negative terms of trade
147
consequence of eco-labelling particularly for devel-
oping countries.
Acknowledgments
We thank seminar participants at the IAAE 2003
Annual Meeting (Durban, South Africa), the SAET
(Society for the Advancement of Economic Theory)
2003 Annual Conference, the University of Hong
Kong, and the City University of Hong Kong for useful
comments. This paper was completed while Basu and
Chau were visiting the Center for Development
Research (ZEF), University of Bonn, Germany. The
final revision of this paper was undertaken while Basu
and Chau were visiting the Department of Economics
and Finance at the City University of Hong Kong. The
hospitality of the department staff and colleagues is
gratefully acknowledged. Finally, Basu thanks the
Reves Center at the College of William and Mary for a
Faculty Travel Grant.
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