I. Development-environment interactions

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I. Development-environment interactions

1. Data on growth, development and environment
2. Development-environment interactions
3. The EKC

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Growth and structural change

• Economic expansion
• Sectoral changes in production and resource
  allocation
• Changes in relative prices (Engel effects)
• Changes in relative factor endowments
• Differences in technical progress rates
• Contribution of policy reforms, investment and
  trade in globalizing economies

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Summary

• Growth itself increases environmental pressures
• Structural changes alter these
• In globalizing economies, policy reforms and
  investment flows may make crucial contributions

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Environmental trends

• Drivers economic growth, population growth,
  and changes in economic structure, including
  those from policy reforms
• Components of environmental trends
• Industrial emissions and air/water pollution
  flows
• Natural resource depletion

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Summary of env. trends

• Rapid growth and changing econ. structure is
  associated with
• Increases in (urban) air and water pollution
• Continued rapid deforestation and depletion of
  soil and water resources
• These trends have consequences that are local,
  national and even global in nature

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Valuation of env. damages

• Difficult to define and measure, let alone value
  environmental degradation
• Estimates of adjusted NDP usually fall below
  measured NDP.
• ANDP NDP less net depletion (cf. depreciation)
  of environmental capital
• E.g. Indonesia (WRI 1989) Growth of NDP 7 per
  year growth of ANDP only 4 per yr.

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Valuation and policy

• Although aggregate values such as ANDP may be
  large, those for individual environmental
  phenomena are less so.
• Challenge for env. economists is then to convince
  policy-makers that sacrifices for env. purposes
  are worth it.
• This requires complete and careful accounting
  methods, inclusive of indirect costs benefits
  (e.g. double dividend arguments)

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Development and environment in LDCs

• Economic growth in developing economies incurs
  high environmental costs.
• Initial conditions resource-dependent, capital
  poor countries.
• Legacy of economic growth strategies
• Import-substituting industrialisation
• Agricultural development policies

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• Global research has focused on industrial
  emissions, but in LDCs most problems concern nat.
  res. degradation
• their severity and interaction with economic
  processes differs sharply from that of
  pollutants
• (Jha and Whalley 1999)
• Growth policy reforms have very different
  implications for pollution and for NR depletion
  and degradation

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• As countries globalize there is an apparent
  increase in the rate at which resource depletion
  environmental damage occurs.
• Is globalization responsible for ENR depletion?
• Is env. damage increasing linearly, or will
  problems solve themselves in time?
• Are LDCs the same as now-cleaner rich
  countries?
• Policy/project solutions for NR degradation are
  typically defined within same geog. bounds as
  problems--and often fail.
• Proximate causes of deforestation (population
  growth and agricultural intensification in
  fragile ecosystems) are in fact endogenous

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The grammar of policy arguments

• Few arguments on growth, globalization and
  environment have consistent microeconomic
  foundations.
• Need both positive analyses (what is happening,
  and why?), and normative analyses (what should be
  done?).
• The scope of analysis (what is endogenous?) must
  be as broad as possible.

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I. Development-environment interactions
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The environmental Kuznets curve

• With economic growth, pollution intensity first
  rises, then declines
• z z(Y/P)
• z gt 0 z lt 0.

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Components of EKC

• Scale effect (economic expansion)
• Composition effects
• Relative price changes
• Unbalanced growth-- from several sources
• Technique preference effects
• Production technology
• Consumer preferences policy pressures

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Is there an EKC in Asia?

• Empirical studies
• Industrial emissions-- maybe.
• Deforestation, water and soil resource
  depletion--no robust evidence of EKC.
• Yet experience of wealthy countries suggests that
  EKC concept remains a useful working hypothesis.

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Factors affecting EKC shape

• Exogenous market influences (globalization)
• Property rights
• Externalities
• Policy accidents (e.g ISI strategies affecting
  indl ag growth)
• All have economy-wide implications
• Spatial dimensions may also be important

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Methodological approaches

• Economy-wide mechanisms require general
  equilibrium techniques
• Methods must also capture key elements of real
  world conditions
• Trade and intersectoral market integration
• Spatial dimensions of pollution
• Institutional and policy dimensions

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A note on micro vs. macro approaches

• Agents behavior (e.g. firm/farm) is dynamically
  linked to macro level changes.
• Economy-wide or global changes affect decision-
  making by micro units, through prices, etc.
• Behaviour of micro-units in aggregate affects
  macro outcomes outputs, prices, employment,
  income distribution, and environmental
  externalities
• Indirect and loop back effects can be very
  important
• Micro and macro approaches are complementary.
  Both are required.