Can Markets Improve Recycling Performance? A Cross-Country Regression Analysis and Case Studies

Abstract

Can recycling reduce negative externalities created by landfills? Environmentalists argue yes; however, the efficiency of recycling will be institutionally contingent. Entrepreneurs will face less barriers to profit from recycling in countries with more economic freedom. Additionally, recycling conducted by private firms will be more cost-effective and have higher rates of innovation in recycling technology relative to a nationalized industry. The purpose of this study is to test these claims. First, a two-way fixed effects regression model is estimated using panel data from 34 countries over the years 2000 to 2019. Our regression results show that increases in economic freedom have a positive effect on recycling rates, independent of related policy effects. Second, using two brief case studies of the Republic of Korea and Taiwan, we show how the inefficiencies of bureaucratic management suggest that private industry can be a less costly solution to encouraging recycling. The empirical results and case studies strongly suggest that increases in economic freedom can be an important mechanism for increasing recycling rates, and private industry involvement in existing recycling programs can limit unnecessary costs.