The Effect of Growth in Shipbreaking Yards on Economic
Development: The Importance of Including a Broad View
The Case of Bangladesh
University of Groningen
Faculty of Economics and Business
MSc in International Business and Management
Master Thesis
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Abstract
This paper presents groundbreaking ethical dilemmas concerning the increase of shipbreaking yards in South Asian countries, which need to be examined with a broad view. Abundant research shows the negative outcomes of the growing shipbreaking industry in terms of environmental threats. Hence, considering the environmental issues related to the shipbreaking activities, these dirty practices should not be allowed. However, literature from an economic perspective is clearly lacking behind, and might give a completely different view on whether or not the shipbreaking activities should be banned. First, in need of the economic perspective, this paper shines some light on the positive economic impact in terms of steel supply, and positive social impact concerning employment provision, with the case of Bangladesh, world’s largest shipbreaking country. Second, in order to obtain an even broader view of the shipbreaking situation, this paper recognizes the importance of not only analyzing the national level(Bangladesh), but also the regional-(Chittagong District) and local level(Chittagong). Third, to finalize the broad view, it is important to view the shipbreaking yards as part of the Global Value Chain. To start with, a national regression has been performed with the results showing a direct positive relationship between an increasing number of ships dismantled and economic development in terms of Foreign Direct Investment inflow. Afterwards the Quick Scan Model has been applied, proving that this relationship does not show the same results on all three geographic levels. The big unanswered question remains; To what extent can an increase in national economic- and social development outweigh the extreme environmental issues related with the growing shipbreaking industry? The results suggest that on the short term the world should simply accept the devastating environmental activities, as the economic and social benefits do outweigh the environmental concerns. Whereas, on the long term green knowledge about safe and responsible ship dismantling should be brought to the country.
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Table of Contents
1. Introduction 5-8
2. Literature Review 9-20
2.1 Various Effects of Industry Development in General 9
2.2 Various Effects of Shipbreaking Yards 9,10
2.3 The Economic/Social Description at The National Level 11-17
2.3.1 The Social Benefit: Employment Rate 11-13
2.3.1.1 The Effect of Shipbreaking Yards on Eco. Development 11,12 2.3.1.2 The Effect of Shipbreaking Yards on Employment Rates 12, 13 2.3.1.3 The Effect of Employment Rates on Eco. Development 13 2.3.2 The Economic Benefit: Steel Production 13-17
2.3.2.1 The Effect of Shipbreaking Yards on Steel Production 14 2.3.2.2 The Effect of Steel Production on Eco. Development 14 2.3.2.3 Global Value Chain and Corporate Social Responsibility 15-17
2.4 Mediation Effects 17,18
2.5 The Need For a Description on Local and Regional impact 18-20 2.5.1 The Relevance of The Local and Regional Level 18,19 2.5.2 The Impact on Local and Regional Level 20
3. Methodology 21,22
3.1 Research Design 21
3.2 Research Methods 22
3.2.1 National Level Analysis 22
3.2.2 Local-, Regional-, National- Level Analysis with the
help of the Quick Scan Model 22
4. Data 23-26
4.1. National Level Analysis 23,24
4.1.1 Variable Measurements 23,24
4.2 Local-, Regional-, National- Level Analysis (Quick Scan Model) 25,26
5. Results 27-32
5.1. National Level Analysis 27-29
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5.2 Local-, Regional-, National- Level Analysis (Quick Scan Model) 29-32
5.2.1 Respondents 29,30
5.2.2 Data Processing 30-32
6. Conclusion 33-37
6.1 Answers To The Research Questions 33-35
6.2 Future Recommendation; Green Dismantling 35,36
6.3 Limitations and Future Research 36,37
7. References 38-44
8. Appendices 45-150
8.1 Distribution of Studentized Residuals 45
8.2 VIF Values 45
8.3 Correlation Matrix 46
8.4 The Questionnaire 46-57
8.5 List of Respondents 58
8.6 Results per indicator: Present Situation 59-111
8.7 Results per indicator: Past Situation 111-148
8.8 Average present results per indicator 149
8.9 Average past results per indicator 150
5 Figure 1: Beaches of Bangladesh (Webb, 2014) Ethical dilemma:
Do we care more about the environment, or about 140.000 people starving to death?
1. Introduction
Nowadays, approximately 50.000 ships are roaming the seven seas. Due to increasing global trade, more ships need to be broken down and recycled. At the end of their lives more than 80% of all ships end up in Bangladesh, India or Pakistan (Heidegger, Jenssen, Mulinaris, Carlsson, & Willcox, 2015). In these countries, the ships are just ramped up onto the beach and dismantled by often unprotected and underpaid workers under extremely dangerous working conditions including child labour.Unsurprisingly, shipbreaking has been declared as one of the most dangerous jobs in the world by the International Labor Organization (Gwin, 2014; Industriall Global Union, 2015; Karimjee, 2013; Webb, 2014).
Bangladesh has shown an enormous expansion of shipbreaking yards in the last three decades, and is currently the largest ship dismantling country in the world. Low wages, beneficial tide level, and low environmental standards make Bangladesh a popular destination for the above mentioned industry. In the year 2016, 198 ships, equaling 13.526.994 Deadweight tonnage, have been torn apart on the ship graveyard of Bangladesh (Clarkson Research Services Limited, 2017). These practices have not only impact on the affected countries, but have serious consequences for the whole world.
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A vessel reaches the end of its operational life after about 20 to 30 years of operation. In order to get the last revenue from the steel used in the ship’s structure, shipowners sell their old ships to the cheapest dismantling destinations (Rousmaniere, 2007). In fact, ships can also be dismantled in a safe and responsible way in European countries, however, this is much more expensive than the low wage South Asian countries with a lack of environmental regulations. As a shipowner wants to remain anonymous, they can simply sell the vessel to a middle-man, or change the name and the flag of the vessel. In this way the shipowners do not take responsibility for the problems they cause by dumping the vessels on the beach; they simply choose profit over responsibility without too many consequences (NGO Shipbreaking Platform, 2017).
Extant research has been performed on the serious environmental concerns which are related with the increase in shipbreaking yards on the beaches. For instance, the shipbreaking industry causes severe pollution to the marine environment, hazardous waste dumping, and deforestation (Kutub, Falgunee, Nawfee, & Rabby, 2016; Lloyd’s register, 2011). The NGO Shipbreaking Platform is an organization which is highly concerned with these practices, wanting to stop old ships to end up in developing countries, and striving to let the polluter pay. Their motto is “safe work, clean beaches” and overarching goal is: “to prevent toxic end-of-life ships from being beached in developing countries” (Verte, 2017). But not only the NGO Shipbreaking Platform wants to change the current environmental-stressing situation, also world politics debate regularly on possible solutions and appropriate regulations that have been, or need to be implemented.
However, previous one-sided literature has a narrow and one-sided view by only taking into account environmental threats, without considering the social effects and the economic development of the affected countries. It is crystal clear that from an environmental perspective these dirty practices should not be allowed. Nevertheless, it should also be explored from an economic perspective whether or not the shipbreaking activities should be banned, which will be done in this paper with a broad view.
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2006). Besides that, another important reason to keep broadening our view is because when having a narrow focus, people can be blinded to other important issues (Lukens, 2015). By fulfilling the great need to develop a broader view on this paper’s topic, not only the ecological impacts should be considered, but also the social- and economic effects of the situation in Bangladesh should be taken into account, aligning with the Triple Bottom Line (Elkington,1997). Moreover, the phenomenon of shipbreaking beaches needs to be explored on multiple levels to get a broad and accurate picture, namely; locally, regionally and nationally. Lastly, it is necessary to consider the shipbreaking beaches as part of the global value chain, bringing possible responsibility for the dirty demolishment further back in the chain, instead of only blaming the shipowners.
Hence, we are highly concerned with the question; What is the influence of growth in shipbreaking yards on the economic, social and ecological conditions? And when taking a closer look; How will these effects work out at the national, regional and local level for the shipbreaking yards? Furthermore; Who is responsible for these ‘dirty’ shipbreaking practices? But more importantly, we touch upon huge ethical dilemmas; To what extent can an increase in national economic- and social development outweigh the extreme environmental issues? With the remaining umbrella question; Do we care more about the environment, or about 140.000 people starving to death? This paper is addressing these questions with the case of the leading shipbreaking country; Bangladesh.
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relationship between growth of shipbreaking yards and economic development, mediated by employment levels and steel production, to be stronger on a regional/local level compared to the country level outcomes.
Groundbreaking ethical dilemmas have been brought to light, given that the results of this research will have strong practical impacts on behavior and actions of ship owners on where to end the lifecycles of their ships. Moreover, for Bangladesh and its inhabitants it is crucial to explore the economic- and social outcomes of the growing ship dismantling industry. Including a broader view from the national- , regional- and local level to get a clear overview of the current situation and prospective future perspectives. To be highlighted is the fact that science will be brought to a next level and extended by introducing the economic- and social aspects of the shipbreaking development on three geographic levels. Literature will set a new theoretical stage by weighing social- and economical advantages with environmental disadvantages. Moreover, the shipbreaking yards will not only be seen as an industry on its own, but also as part of the global value chain, distributing responsibility for the dirty ship dismantling further back in the chain. But most importantly, world politics gain critical insights related to implementation of regulations. This paper’s main contribution is to provide such a necessary broad view of the shipbreaking situation in Bangladesh.
9 2. Literature Review
2.1 Various Effects of Industry Development in General
As a result of a growing industry or sector, various impacts may arise. Several examples of growing industries show their effects on ecological, social and economic conditions. To start with the palm oil industry as an example which causes; deforestation as environmental impact, social conflicts influencing people’s welfare, and a profitable industry leading to economic growth (SPOTT, 2017). Another good example is the rapidly developing fashion industry, placing increasingly more emphasis on ‘fast fashion’ which is produced quicker. This industry is associated with huge environmental impacts in terms of pollution, but also bad manufacturing conditions, unemployment and declining economic growth due to a large amount of second-hand clothes available (Ndachengedzwa & Stecca, 2016). Moreover, GoodElectronics, Pauline Overeem and CSR Platform (2009) have developed an overview of the global electronics supply chain on the aspects: social, environmental and economic, in different phases of the supply chain. In order to draw an accurate picture of a situation, all of these effects should be taken into account, which is in line with Eggenberger and Partidário (2000) stating: “spatial planning must ensure full integration and assessment of environmental, social and economic issues”. Additionally, the highly recognized Social Impact Assessment literature(SIA) by Vanclay (2003) explaining SIA as “an umbrella or overarching framework that embodies the evaluation of all impacts on humans and on all the ways in which people and communities interact with their socio-cultural, economic and biophysical surroundings”. To address these various impacts of a growing industry or sector, Elkington’s theory (1997) about the Triple Bottom Line should be taken into consideration. Elkington argues that the growing company should take full responsibility for the impacts and consequences on the economic-, environmental- and social level. The growing firm should be aware of its impacts and should cover the costs of doing business by taking care of the planet, profits, and the people.
2.2 Various Effects of shipbreaking yards
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Lauridsen, Dyoulgerov, Bloch, Wingfield, & Watkinson, 2010). Consequently, the situation regarding the growing shipbreaking industry in Bangladesh must also be examined on the ecological, social and economic conditions. Abundant research exists on the environmental consequences of more and more ships being dismantled on the beaches of South Asian countries. Abdullah, Mahboob, and Biruni (2010) call the growing shipbreaking industry in Bangladesh a cancerous tumor to the coastal environment. Due to the lack of environmental regulations, the growing industry causes enormous land destruction, which they claim to double in two decades. The remaining persistent organic pollutants, asbestos, heavy metals, and oil residues of the shipbreaking industry causes negative impact on the seawater and biodiversity (YPSA, 2012). Moreover, severe pollution to the marine environment, hazardous waste dumping, and deforestation are results of the expanding industry (Kutub et al, 2016; Lloyd’s register, 2011). The NGO Shipbreaking Platform is an organization which is highly concerned with these practices, wanting to stop old ships to end up in developing countries, and striving to let the polluter pay. This is in line with the SIA Polluter Pays Principle by Vanclay (2003).
11 Figure 2: Conceptual Model - National Level
2.3 The Economic/Social Description at The National Level 2.3.1 The Social Benefit: Employment Rate
2.3.1.1 The Effect of Shipbreaking Yards on Economic Development
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and the steel price. According to the literature, shipbreaking yards have several positive economic contributions, and therefore we hypothesize the following:
H1: An increase in the number of ships dismantled has a positive effect on economic development at the national level
2.3.1.2 The Effect of Shipbreaking Yards on Employment Rates.
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H2: An increase in the number of ships dismantled has a positive effect on employment levels for a country as a whole.
2.3.1.3 The Effect of Employment Rates on Economic Development
Hull (2009) argues that the level of employment will be a crucial cause of poverty reduction. By using a three step framework on per capita GDP growth, she tries to develop a deeper understanding of the relationship between economic growth, employment and poverty reduction. Hence, employment rates are important determinants of economic growth. By turning it around, according to Hudson (2013) “unemployment is a key macroeconomic indicator to determine the health of an economy”. Simpson (2011) examines the significant costs of unemployment to the economy having effects on the individual, the society and the country. Unemployment is universally recognized as a bad thing, because often unemployment leads to slower economic growth (Reference.com, 2017). Effects of unemployment on the economy include; unemployment financial costs, reduced spending power, and recession (Job-interview-site.com, 2017). Hence, we expect that as employment levels increase, this will have a positive influence on economic development of Bangladesh.
H3: A rise in employment levels has a positive effect on economic development at the national level
2.3.2 The Economic Benefit: Steel Production
Amin (2015) performed research on the changing global steel industry. They described the transition from China as main producer and consumer of global steel to the growing local industries. Much literature agrees on the fact that Bangladesh is a great example of a strongly growing and booming steel industry that performs very well, and is currently considered as ‘one of Asia's leading emerging steel markets’ (EBL Securities Limited Research, 2016; Linnenkoper, 2015; Steelmint Events, 2016; The Daily Star, 2015). The recent review on Bangladesh’s steel industry claims that more than 400 active steel mills produce yearly more than 4 million metric tons(MT) steels which is worth approximately BDT 300 billion market value (EBL Securities Limited Research, 2016).
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Despite negative environmental aspects, shipbreaking yards also offer several benefits. Besides the above-described positive effect of job creation, the World Bank also highlights the advantage of supplying substantial quantity of scrap steel for the iron and steel industries, namely approximately 50% of Bangladesh’s steel production (Lloyd’s register, 2011; Sarraf et al., 2010). The organization Young Power in Social Action also recognizes the benefits employment and steel production (YPSA, 2012). According to the Steel Group, a well-recognized information- and networking platform about the steel industry, the steel industry in Bangladesh is growing rapidly, mainly located in Chittagong (Tambe & Purohit, 2017). Chittagong is also the location where predominantly the shipbreaking yards are situated, in section 4.2 we will further elaborate on this region. Amin (2015) confirms that the majority of the steel rolling mills receive their raw materials from shipbreaking. Thus, in line with the literature we expect that the growing number of shipbreaking yards has a positive effect on the steel production of Bangladesh.
H4: An increase in the number of ships dismantled has a positive effect on steel production at the national level.
2.3.2.2 The Effect of Steel Production on Economic Development
The enormous steel supply from the shipbreaking yards plays a significant positive economic role and is a major contributor to the national economy. The World Bank report by Sarraf et al. (2010) listed the revenues from steel as essential to the shipbreaking and recycling industry’s competitiveness and profitability. Also the Light Castle Blog (2015) argues that the steel industry is an important driver for economic growth. Next to that, the steel production drives other complementary industries, for instance, transportation. Furthermore, also the steel industry generates many jobs, which in turn will have a positive effect on the economic development of Bangladesh (see 2.3.1.3). Moreover, the organization Young Power in Social Action (2012) argues that the steel production from shipbreaking reduces the need to import steel from foreign countries, and thus saving money and dependence. Consequently, we hypothesize the increasing steel production to have a beneficial effect on the economic development of Bangladesh.
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2.3.2.3 Global Value Chain and Corporate Social Responsibility
When reading the part about steel provision, it is however important to notice, that the shipbreaking yards can also be seen as part of the global value chain. Shipbreaking yards are not an industry on its own, but part of a bigger whole; the global value chain. A value chain is defined as “full range of activities that firms and workers do to bring a product from its conception to its end use and beyond” (Gereffi & Fernandez-Stark, 2011). As trade costs have decreased heavily, production will take place where the production costs are relatively lowest, leading to increased efficiency and firm competitiveness (Porter, 1990). The value chain will fragment around the globe, when following the comparative advantage of locations (OECD, 2012). Hence, to obtain a broad view on the shipbreaking issue, the whole global value chain should be taken into consideration, instead of only focusing on the end stages in South Asian countries.
Figure 3: Global Value Chain of a Ship.
Note: From left to right; 1. Financing of a ship by investors and the buyer, 2. Production of the ship by a shipbuilding yard, 3. Operational life of the ship by its shipowner, 4. Ship on the end of its lifecycle after approximately 20-30 years, 5. Dismantling of the ship by a shipbreaking yard, 6. Steel provision from the dismantled ships, being used for new products starting new global value chains. The big red arrow illustrates the connection between the beginning and end of the chain, bringing responsibility for the end stages further back in the chain.
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The steel sourced from the shipbreaking yards, is a basic raw material that can be used for multiple purposes and other industries (EBL Securities; Bangladesh Steel Industry Review, 2016). Growth of the steel industry depends mainly on infrastructural development (Amin, 2015). Bangladesh is a growing developing economy that has increasing need for raw materials and steel making technologies to invest in infrastructural development (The Daily Star, 2016). The expectation is that the steel production will continue to heavily grow in the future, consistently with Bangladesh its economic and infrastructural development (EBL Securities Limited Research, 2016). However, many organizations (i.e. NGO Shipbreaking Platform) are concerned with the shipbreaking issue in developing countries, and international law states that developed nations are not allowed to dump their western ships in developing countries. They push for a situation where “EU-registered ships need to be recycled only at sustainable facilities approved by the EU” (Amin, 2015). It is however very unlikely that the circumstances in which Bangladesh dismantles the ships, will receive this EU approval. In this case there will be a shift away from shipbreaking yards as source for the steel production.
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practices throughout the chain—from supplier of raw materials to final end-users”. Furthermore, GoodElectronics Pauline Overeem and CSR Platform (2009) reported about CSR in the global value chain of the electronics sector, arguing that stakeholders and unions in the first place need to be more involved in the CSR. Hence, instead of simply blaming the shipowners, we should include a broader view taking the rest of the value chain also into consideration. NGO Shipbreaking Platform founded in 2013 the website Off the Beach which shares a list containing names of irresponsible shipowners who continue to dump their toxic ships on the South Asian beaches. This knowledge will influence the consideration for cargo owners’ CSR initiatives (Off the Beach, 2017). Cargo owners decide which shipowners they choose for their transport, and thus decide which shipowners survive in the market. Other than that, international law develops strict regulations for shipbuilding yards, who produce the ‘dirty’ ships. Currently, Lloyd’s Register is carrying out research on ‘recycling-friendly’ ship designs i.e. use of less heavy metals, making the ship recycling safer and cleaner. The research is not finalized yet, however, it does bring responsibility to the shipbuilders in the beginning of the global value chain (Lloyd’s Register, 2011).
To conclude, the responsibility for the environmentally harmful shipbreaking activities in Bangladesh cannot easily be discovered. Currently, we lack seeing the shipbreaking practices as part of the global value chain by simply blaming the shipowners. A broad view should be obtained, where the beginning and the end of the chain should be connected with regards to the responsibility issue (red arrow in figure 3). For example, bringing responsibility further back to the shipbuilding yards who created the ‘dirty’ ship, or the stakeholders who invested in the ‘dirty’ ship. An ethical dilemma remains concerning who is actually responsible for the dirty shipbreaking practices at the end of the chain. Future research will have to scrutinize this relationship in deeper detail, to get an even broader and clearer picture of the situation.
2.4 Mediation effects
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economic development rather than environmental protection or labor justice (Kutub et al., 2016).
H6: There is a positive relation between the increase in the number of ships dismantled and economic development, and this relation is mediated by the employment levels.
H7: There is a positive relation between the increase in the number of ships dismantled and economic development, and this relation is mediated by the production of steel.
The work of Hossain seems to have similar aspects as this study, however, it is important to mention that Hossain mainly just listed advantages and disadvantages of shipbreaking on a country’s economy. In fact, this paper is going to empirically test the relationships with economic development, and is thereby filling an interesting gap in research. Besides that, this economic perspective will be tested with a broad view which will be valuable and complementary to the extant research on the environmental consequences of the shipbreaking beaches. To be precise, the first seven hypotheses cover the relationship between rising numbers of vessels broken down on the shipbreaking beaches and economic development on the national level. The next section 2.5 will analyze the abovementioned relationship on three different geographic levels, aiming to answer the related hypothesis 8.
2.5 The Need For a Description on Local and Regional Impact 2.5.1 The Relevance of The Local and Regional Level
Even though Temple (1994) recognizes the difficulty and complexity to define a region, we would still like to give the definition we use throughout this research. The definition given by Armstrong and Taylor (2000) will be used: “A regional economy is a geographical subset of the national economy. It may be as large as a state or province or as small as a local authority area”.
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20 2.5.2 The Impact on The Local and Regional Level
The coastal regions nearby shipbreaking beaches are relatively more heavily impacted by employment provision and steel production of the growing shipbreaking yards than the land inward regions. Therefore, I expect the positive relationship between growth of shipbreaking yards and economic development, mediated by employment levels and steel production, to be stronger on a regional/local level compared to the country level outcomes.
H8: The positive relation between the increase in the number of ships dismantled and economic development, mediated by the employment levels and steel production, is relatively stronger on a regional/local level than on the national level.
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This research touches upon the question addressing the influence of growth in the number of ships being dismantled on the economic development of Bangladesh. The results of the extensive literature review are consistent with the expectation that there is a positive relationship between increasing amounts of shipbreaking yards and economic development of the affected country. Moreover, growing employment levels and steel production will have a mediating effect on this relationship. When considering this relationship on the regional/local geographic level, we expect this effect to be stronger and more severe.
This is the first empirical analysis that covers the above-mentioned relationship with the case of Bangladesh. This country has become a frontrunner in breaking old ships and is currently the largest ship dismantling destination in the world. Consequently, I expect to detect positive economic outcomes in Bangladesh caused by its growing shipbreaking industry. In order to test the stated hypotheses, I will provide a detailed research design with corresponding methods that are being used.
3.1 Research Design
In order to set up an appropriate research design successfully, a deductive research approach will be followed. Several hypotheses have been formulated and stated in the literature review, which are yet going to be tested to find an answer. The research methods section is divided into two parts; we look at the relationship between growing shipbreaking yards and national economic development on a general economic level first, and then use the Quick Scan Model to operationalize this relationship on the three levels. Respectively, section 3.2.1 covers the National Level Analysis, which aims to find answers on the first seven hypotheses. An experimental research will be used in which the actual results will be compared to the expectations which were formulated beforehand. This longitudinal study will cover the time period from year 1996 to 2016. Section 3.2.2 describes the Local-, Regional-, National- level analysis, using the Quick Scan Model in order to test H8.
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To start with the country level analysis where the general economic relationship between growing shipbreaking yards and national economic development will be performed aiming to test the first seven hypotheses. In order to make any conclusions about the reliability of the data, several tests have to be performed; normality, multicollinearity, heteroscedasticity. The empirical model used to test the posed hypotheses is a Regression Analysis with testing for mediation. The hypotheses are formulated in line with Baron and Kenny’s four step approach accordingly (Baron & Kenny, 1986). ‘Economic Development’ takes the role as dependent variable, ‘Number of Ships Dismantled’ is the independent variable, and the model has two mediators: ‘Employment Rate’ and ‘Steel Production’ (figure 2).
3.2.2 Local-, Regional-, National- level analysis with the help of the Quick Scan Model
To capture the economic situation of Bangladesh and the described relationship on three different geographic levels to answer hypothesis 8, this research uses the Quick Scan Model designed by Mulder (2014). The Quick Scan Model uses and analyses a set of socio economic indicators on national-, regional- and local level, and is suitable to use for all different types of economies around the world. Moreover, we consider the fact that the Quick Scan Model does not require its respondents to have prior knowledge from the situation, as a great advantage (Mulder, 2014; Zwitter 2014). In the chapter by Mulder and Pennink (2014) the Quick Scan Model is further described and used for a comprehensive context analysis, in which according to them “the local level is the most important level for economic context analysis because based on information of the local level it becomes the most explicit what is needed”. The authors argue that the more respondents can be asked for the analysis, the more reliable the results will be. In the ideal situation this will be 4 to 8 respondents per indicator. Based on the work of Mulder (2014) a questionnaire was created, which is displayed in appendix 8.4. Also Clark (2010) sees the regional/local economy analysis as necessary, and considers a survey as an appropriate tool to obtain detailed knowledge about the local area. The questionnaire covers the local level of Chittagong, the regional level of Chittagong District, and the national level of Bangladesh. More information about the questionnaire will be provided in the Data Collection section 4.2 below.
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This longitudinal study will be based on a set of reliable secondaryand primary sources of data. Respectively, the Data section will be divided into two parts; 4.1 National Level Analysis and 4.2 Local-, Regional-, National- Level Analysis (Quick Scan Model).
4.1. National Level Analysis 4.1.1 Variables Measurements
For the general economic national model, secondary data will be used. Yearly secondary quantitative data from the country Bangladesh will be collected for the four variables; ‘Number of Ships Dismantled, ‘Economic Development’, ‘Employment Levels’ and ‘Steel Production’.
Number of Ships Dismantled
First of all, the independent variable ‘Number of Ships Dismantled’ will be expressed in ‘Amounts of Deadweight tonnage broken down per year, in Bangladesh’. Deadweight tonnage (DWAT) refers to the “carrying capacity of a vessel, without including the weight of the ship itself” (Bruno, 2013). Logically, as the shipbreaking yards grow, more ships will be dismantled. Data covering this variable will be both collected from the Clarkson Research Services Limited. This comprehensive shipping database updates its data daily on “the world's cargo and offshore fleets of over 150,000 vessels on a daily basis, including technical features, freight rates, ship prices and cargo/economic statistics” (Clarkson Research Services Limited, 2017). As can be seen from table 1, Deadweight tonnage is expressed in 1000 kilograms, showing a mean of 7520760476 kilograms. This can be interpreted as; on average the country Bangladesh had dismantled 7520760,476 DWAT per year during the time period 1996 - 2016 (N = 21). Observing the raw data from both measurements, shipbreaking yards and their dismantling activities have grown strongly over the years.
Economic Development
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context of a country. Transparency and political- and economic stability are conditions to increase the country’s attractiveness for FDI (Birnleiter, 2014). Presumably, the more developed the country, the more attractive for the inflow of FDI. Over the years Bangladesh has become much more attractive for FDI inflow, as the raw data indicates a very strong rise since early 21th century. On average Bangladesh received yearly approximately 917 million US dollar between 1996-2015.
Employment Rate
Thirdly, the mediator ‘Employment Rate’ will be measured as ‘Employment to population ratio per year in Bangladesh’ (Employment to population ratio, 15+, %). Data covering the mediator ‘Employment Rate’ has also been obtained from the World Bank Database. Observing the raw data does not give a clear pattern during the time series; from 1996 till 2003 the employment to population ration seems to decrease, and afterwards the ratio remains relatively stable. When analyzing the results, it is however important to take into account, that the population of the country has extremely increased over the years, with currently approximately 164 million people, which is equal to 2.19% of the total world population (Worldometers, 2017).
Steel Production
Fourthly, the Knoema Database provides us with information for the ‘Steel Production’ mediator. Knoema is a US-based company, founded in order to decrease the lack of available quality data for economic development policies and aid programs. Unfortunately there is presence of missing values in the dataset for the years 2000-2007 of ‘Total Production of Crude Steel Per Year in Bangladesh’. Predictive model was used to account for the missing values, with the help of a linear regression based on the independent variable; ‘amounts of Deadweight tonnage dismantled per year’. Deadweight tonnage was used because this variable has a significant explanatory effect on steel. From the raw data it can be seen that in the last years from 2008-2015 the steel production has risen significantly, which in line with the extensive literature review. In the last year of our sample size, 2015, 100 million kilograms of crude steel have been produced, which is the highest amount so far.
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Note: DWAT refers to Deadweight tonnage x 1000 kilograms. FDI is measured in current US$. Employment rates are given in %. Steel is expressed in kilograms.
4.2 Local-, Regional-, National- Level Analysis (Quick Scan Model)
With the Quick Scan Model, primary data will be collected via a questionnaire on the three levels: local- (Chittagong), regional- (Chittagong District), and national level (Bangladesh)(appendix 8.4). The reason to analyze Chittagong on the local level is because the city is located in a coastal region, it is the second largest city, and it is a major seaport in the country. Most shipbreaking activities in Bangladesh are concentrated in the Chittagong district (World Bank Report, 2010). A key location for ship recycling is Chittagong in Bangladesh (Lloyd’s Register, 2011). Hence, impacts of the growing industry are expected to be most severe in this region, and therefore interesting to explore. “Labour is extremely cheap, environmental and labour standards are loosely applied, and no pre-cleaning of the ships are required for entering the ship breaking beach in Chittagong” (Young Power in Social Action, 2012). This makes Chittagong attractive to strand the old ships and makes it one of world’s largest ship graveyards. Consistently, the steel industry is also growing predominantly in this area (Tambe & Purohit, 2017). Regarding the regional disparities, Chittagong is amongst the three divisions which perform better concerning growth and poverty reduction than other divisions of the country (IMF report, 2013). It is however important to note that there are besides shipbreaking many more activities taking place in Chittagong and surroundings, making it therefore difficult to trace back which economic effects are in fact caused by the ship dismantling industry.
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results from before Bangladesh became number one shipbreaking country in the world (2 years ago), and the current situation (2017). Clark (2010) also recognizes the importance of analyzing the regional/local economy, suggesting to view the economy from the past-, present-, and future perspective. So by taking the difference with two years ago, the progress and development of the relationship over the past two years can be measured. The respondents were supposed to answer the questions by means of a scale from 1 to 10 with their impression of the situation(1= ultimate low point, 5= situation just enough, 10= best possible situation) (Mulder & Pennink, 2014).
5. Results
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the relationship between growing amount of ships dismantled and economic development on a general economic level (H1-H7). Section 5.2 displays the results of the local-, regional-, national- level analysis, where the above mentioned relationship has been operationalized on the three geographic levels using the Quick Scan Model (H8).
5.1. National Level analysis
5.1.1 Violations To The Regression Analysis
Normality
First of all, the data needs to be tested for normality, and this can be done by plotting a histogram of studentized residuals. Figure 8.1 in the appendix displays a histogram of our data, showing evidence that our data is normally distributed, satisfying the normality assumption.
Multicollinearity
Secondly, the reliability of the dataset and the eventual results will be affected by any presence of multicollinearity. Consequently, the data will need to be tested to what extent the analyzed independent variables are correlated with one another. Values of the variance factor (VIF) express the severity of multicollinearity and its impact on the results. VIF values between 1-10 illustrate the ideal situation without multicollinearity. When the VIF values are smaller than 1, or greater than 10, then there is presence of multicollinearity (Spsstests, 2015). Observing the VIF values for the total model in appendix figure 8.2, it can be concluded that there is no presence of multicollinearity, and that the data is reliable and trustworthy to work with.
Heteroscedasticity
Thirdly, it is important that the data also satisfies the assumption of homoscedasticity. In other words, the error term should be constant for all values of the independent variables (StatisticsSolutions, 2013). The amount of homoscedasticity can be statistically tested with the Breusch-Pagan test, in which the following hypotheses are formulated; H0: there is no presence of heteroscedasticity, and H1: there is presence of heteroscedasticity (Pedace, 2017). Our model did not yield a significant effect (P-value of 0.175>0.10), thus H0 cannot be rejected. Consequently, we accept the null hypothesis that there is no presence of heteroscedasticity in our data, validating our homoscedasticity assumption.
28 5.1.2 Results of Regression With Mediation
From the correlation matrix in figure 8.3 of the appendix it becomes clear that the variables correlate with each other. To start with the modelling of these effects to check the direction of these correlations.
Table 2: Regression Output
Note: *p < 0.10, **p < 0.05, ***p < 0.01. Column (1) covers FDI inflow as dependent variable, and the independent variable; # of Ships Dismantled, and the two mediators; Employment and Steel included as independent variables separately, to investigate the direct effects. Column (2) is the total model with FDI inflow as dependent variable, the independent variable # of Ships Dismantled, and the mediators Employment and Steel all included simultaneously, in order to explore the mediation effect.
29
mediator shows a negative significant effect on FDI inflows, making us to reject H3 (P=0.030<0.05). Unexpectedly, the results suggest that increasing employment levels lead to a decline in economic development of the country. Furthermore, it has been found that Deadweight tonnage dismantled does have a positive and highly significant effect on the steel production, accepting H4 (P=0.000<0.01). If the amount of ships dismantled measured in Deadweight tonnage goes up by 1000 kilograms, then steel production rises with 0.000004809 kilogram. In addition to that, also a positive significant effect has been found from steel production on FDI inflow (P=0.000<0.01). When steel production increases with 1 kilogram, then FDI inflow grows with 37059389.529 $. Based on these results we can accept H5 that steel production has a positive effect on economic development nationally. When adding both the independent variable and the steel mediator to the model, the relationship between the steel production and FDI inflow remains significant(P=0.085<0.10), however, the significance of the relationship between Deadweight tonnage dismantled and FDI inflow disappears (P=0.852>0.10). This means that the effect of increasing amount of ships dismantled(DWAT) on economic development(FDI) is fully mediated through the steel production, hence, the model accepts H7.
5.2 Local-, Regional-, National- Level Analysis (Quick Scan Model) 5.2.1 Respondents
30
Shipbreaking Platform and Young Power in Social Action in Bangladesh, with more than 15 years of experience working with the shipbreaking issue. The third respondent’s name is Hamza Farrukh, a computer science student from Pakistan, he visited Bangladesh recently, so his results were being used for the current state. Fourthly, Jochem Roubos, a master student hydraulic engineering at the university of Delft. He did an internship in Bangladesh 2015, so his answers were used as representative for the situation 2 years ago. Fifthly, Awsaf Hossain who is currently studying at the Chittagong Grammar School. Sixthly, Kazi Ishfar Ahmed, a trainee teacher at Regents School Pattaya. Last, Monzur Morshed Chowdhury, commercial director of the shipbuilding yard Western Marine Shipyard located in Chittagong, who gave an impression of the current state of the economic situation. All of the respondents are male. Even though we have a relatively small amount of respondents, it is however, a sufficient number to analyze a situation according to Mulder and Pennink (2014). They argued that between 4-8 respondents per indicator are needed for realistic picture, and this was managed for all the indicators on all levels, except for the indicators in the past situation on the regional level (sample of 3).
5.2.2 Data Processing
Each respondent has marked the state of the situation per indicator on a scale from 1 to 10, with 1 being the ultimate low point and 10 as the best possible situation. Table 3 displays an example of questionnaire results per respondent, per level, per indicator. Appendix 8.6 and 8.7 give all the results for the present and past situation respectively.
Local Level Chittagong
Respondent Subindicator Input Score
31
2. Measure of professionalism of small businesses 7 7
3. Number of high-growth small businesses 9 9
4. Measure of hidden unemployment among entrepreneurs
6 6
Total Score 8
Table 3: Present state of Small Businesses: Example of results per respondent, per level, per indicator
After having determined all the total average scores per indicator for both the present and the past, the total average per level will be calculated (local has 8 indicators, region has 9 indicators, national has 13 indicators). Appendix 8.8 and 8.9 show the total average scores per level of the present situation and from the past. Please note that within each level all the indicators have the same weight. When calculating the overall final score of the economic situation, the local score is being weight 3 times, and the regional and national level only 1 time. The local level receives the highest weighs, as the local level is considered to be most important.
Final Score for present economic context
(0.6 x 5.7 + 0.2 x 5.9 + 0.2 x 6.3) = 5.86 Final Score for past economic context (0.6 x 5.3 + 0.2 x 6.2 + 0.2 x 5.8) = 5.58
32
national improvement of the economic development since two years, are in line with hypothesis 1. Surprisingly, on the regional however, a negative effect has been detected (6.2 → 5.9). Taking into account these results, hypothesis 8 cannot be accepted, saying that the positive relationship between the growing shipbreaking industry and economic development is stronger on the regional/local level than on the national level. In fact the positive improvement was slightly higher on the national level than on the local level (0.5>0.4).
Table 4 shows an overall summary of all the hypothesis-testing results based on the outcomes from both the national level analysis(5.1) and the Local-, Regional-, National- Level Analysis(5.2).
Table 4: Summary of all hypothesis-testing results
H1: An increase in the number of ships dismantled has a positive effect on economic development at the national level.
Accept
H2: An increase in the number of ships dismantled has a positive effect on employment levels for a country as a whole.
Reject
H3: A rise in employment levels has a positive effect on economic development at the national level
Reject
H4: An increase in the number of ships dismantled has a positive effect on steel production at the national level.
Accept
H5: A rise in steel production has a positive effect on economic development at the national level.
Accept
H6: There is a positive relation between the increase in the number of ships dismantled and economic development, and this relation is mediated by the employment levels.
Reject
H7: There is a positive relation between the increase in the number of ships dismantled and economic development, and this relation is mediated by the production of steel.
Accept
H8: The positive relation between the increase in the number of ships dismantled and economic development, mediated by the employment levels and steel production, is relatively stronger on a regional/local level than on the national level.
Reject
6. Conclusion
33
With the purpose of obtaining a more complete and accurate picture of the shipbreaking practices in South Asian countries, as emphasized before, it is of great importance to embrace and develop a broad view of this paper’s topic. Owing to the broad and comprehensive acquired information, people gain increased understanding of the situation, and as a result can make better decisions (Ables, 2015; Lukens, 2015; Maznevski & Jonsen, 2006). This paper’s main contribution is to provide such a well-developed broad view of the shipbreaking situation in Bangladesh, including the following aspects which are in line with the formulated research questions. First, the shipbreaking phenomenon has been considered from economic-, social- and environmental perspectives. Second, the shipbreaking situation has been analyzed with empirical information from the national geographic level(Bangladesh), but also from the regional-(Chittagong District) and local level(Chittagong). Third, to finalize the broad view, the shipbreaking beaches are being regarded as part of a greater whole; the Global Value Chain.
34
Hence, we took a closer look by adapting the Quick Scan Model, with which the following research question can be answered; How will these effects work out at the national, regional and local level for the shipbreaking yards? In line with our expectations and the outcomes of the national regression model, it can be concluded from the Quick Scan Model results that since shipbreaking has enormously increased the past two years in Bangladesh, the economic context considering all levels has improved. This positive mainly exists on the local- (Chittagong) and national level(Bangladesh). However, looking only at the outcomes of the regional level, surprisingly a small deterioration of the economic environment has been detected on the regional level(Chittagong District). These results are in contrast with the expectations of H8 that this positive relation between the increasing number of vessels broken down and economic development would be stronger on the regional/local level than on the national level.
The third research question; Who is responsible for these ‘dirty’ shipbreaking practices? At the moment, we lack seeing the shipbreaking practices as part of the global value chain by simply holding shipowners responsible for the environmental devastating shipbreaking activities. However, this paper argues that we should aim to take a broader view by considering the whole global value chain instead (Figure 3). For instance, bringing responsibility further back to the shipbuilding yards who created the ‘dirty’ ship, or the stakeholders who invested in the ‘dirty’ ship. Thus, not only considering the end-activities taking place in Bangladesh, but countries worldwide participating in the global value chain beforehand. The ethical dilemma remains of who is actually responsible for the dirty ship dismantling activities, and future research will need to explore this dilemma to get a broader and more accurate picture of the situation.
We then stumble upon the huge ethical dilemma; To what extent can an increase in national economic- and social development outweigh the extreme environmental issues? With the remaining, maybe a little harsh, umbrella question; Do we care more about the environment, or about 140.000 people starving to death? These questioned will now be answered in form of a recommendation for the future.
6.2 Future Recommendation; Green Dismantling
35
and social benefits the industry brings in terms of steel production and employment, it is certainly not recommended to ban the dirty practices from the country completely. Instead, a good solution would be to bring knowledge about green and responsible shipbreaking to the regions. Co-inventor of the Green Dock, Mr. D. Mulder, highlights the multiple advantages of his invention during our conversation (personal communication, April 12, 2017). By introducing and building an Green Dock in Bangladesh, a regular Bangladeshi shipbreaking yard can dismantle around 24 ships per year, instead of only 3. The Green Dock offers a little bit less employment than the current way of ship dismantling, however, due to the increasing speed of dismantling the vessels in the Green Dock, there will be enormous amounts of outputs of steel, creating many more jobs in the steel industry than beforehand. In that way Bangladesh will build an even stronger position in the world steel market. Moreover, the prices are the same for the shipowners to sell their ship to a Green Dock or a regular shipyard with the ‘beaching method’, making it attractive for the shipowners to contribute to the greener shipbreaking. Bangladesh shows an increasing interest in the Green Dock facilities of Mr. Mulder. Still, this is very far away from the actual realization, as negotiations with the Bangladeshi government, investors and stakeholders take lots of time, making it an extremely slow process.
To what extent can an increase in national economic- and social development outweigh the extreme environmental issues?
To conclude, we all unitarily agree on the fact that something has to be changed in the Bangladesh situation because of the enormous environmental impacts and work conditions. However, simply moving the whole shipbreaking to the more responsible Western shipbreaking countries will not be the solution, because this will be economically devastating for Bangladesh as a country (Gwin, 2014). Having said that, the economic and social benefits do outweigh the environmental concerns on the short term.
Do we care more about the environment, or about 140.000 people starving to death?
36
6.3 Limitations and Future Research
37
we assume that the changes in indicators are caused by the dynamic of the shipbreaking industry. However, Chittagong District is characterized by lots of economic activities, making it difficult to tell to what extent the changes in economic development are caused only by the growing shipbreaking industry.
For future researchers who want to obtain a broad and accurate view of the complex situation in Bangladesh, or another developing shipbreaking country in general, they are recommended to develop a broad view by looking at ecological-, social-, and economic effects on local-, regional-, and national levels. Keeping in mind and investigating that the shipbreaking industry can be part of the global value chain and thus distributing corporate social responsibility along the chain. The global value chain of ships should be examined in greater detail for future reference.
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9. Appendices
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Appendix 8.2: VIF Values
Variable VIF Steel 3.387 DWAT 2.784 Employment 1.1399
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Note: ** Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at the 0.05 level (2-tailed).
Appendix 8.4: The Questionnaire
Questionnaire: The Effect of Growth in Shipbreaking Yards on Economic Development
This questionnaire is set up in order to analyze the economic effects of the shipbreaking industry in Bangladesh. The questions cover the economic development on the local-, regional-, and national level. The questionnaire is based on work of Mulder (2014)* and Mulder & Pennink (2014)**.
Please note that I would greatly appreciate it if you could fill in the below. Many thanks in advance!
Carlijn Bodewes
Rijks University Groningen, The Netherlands
*Mulder, F. 2014. Measuring an Economy’s State: a Quick Scan Model on Three Geographic Levels - A Tanzanian Case Study.
**Mulder, F.S., Pennink, B.J.W., 2014. The economic context. Humanitarian Crises, Intervention and Security, a Framework for Evidence-Based Programming, Routledge.
