Environmental Economics and Development

1. Environmental Economics and Development Last Lecture!

2. Outline • Context: The big issues in developing countries • The environmental Kuznets curve • Applying incentive-based in transition and developing economies

3. Context: Issues facing developing countries Poverty: • 1.2 billion people live on less than US$1 per day • 2.8b live on less than US$2 per day • 1 in 6 chronically hungry. Health: • 94% of premature death and disability occurs in developing countries, • Life expectancy has dropped below 40 years in 5 African countries. Civil Society: • 31 Civil and Foreign War • 35m Displaced Persons and Refugees • 127 Failed States (1955-1998) Source: Bloom, Harvard University

4. Causes of Death in LDC’s • Unsafe drinking water • Diarrheal diseases (2.2 million deaths/yr) • Malaria (0.7-2.7 million deaths/year) • Aids (3 million deaths in 2000) • Tuberculosis (2 Million deaths/year) Source: Bloom, Harvard University

5. Poverty in the Developing World Source: United Nations

6. Poverty in Developing Regions

7. Causes of Death: Malaria and Tuberculosis (Deaths per 100,000 )

8. Implication • The environmental issues important to developing countries will be different than those that are important in the developed world

9. The environmental Kuznets curve Does development affect environmental outcomes? 2 Hypotheses • Development brings industrialization that could harm the environment. • As countries become developed, they have a greater ability to focus on environmental issues. The 2 hypotheses might each be true for different stages in the development process

10. The Kuznets Curve Inequity Increasing Wealth Simon Kuznets, Nobel Prize Winning Economist

11. The Environmental Kuznets Curve Pollution Increasing Wealth

12. Two ways to view the data • Cross Section: get data from lots of different countries today (GDP vs. Env.) • Time Series: Look at the trends of environmental quality for individual countries as they developed. • Why is neither approach completely satisfactory?

13. Cross-sectional data: water pollution vs. GDP Source: Ross McKitrick, using world bank data

14. Cross-sectional data: air pollution Source: Ross McKitrick, using World Bank Data

15. Time Series Data: New Zealand Methane Source: Giles and Mosk, University of Victoria, Working Paper EWP0306

16. Time Series Data: New Zealand Methane Source: Giles and Mosk, University of Victoria, Working Paper EWP0306

17. EKC summary • Data for many pollutants appears to follow an inverted U pattern, but… • Pattern varies by pollutant • CO2 increases with GDP (no peak) • Other pollutants decline throughout (TSP) • Magnitude of turning point varies • Not clear if this is predictive • Requires economic theory to consider different explanation of the data.

18. Policy Implications • If environmental quality does follow an inverted-u pattern, there may be a role in development policy to: • “tunnel” through the EKC, or at least • Flatten the curve • Ways developed countries can assist: • Regulatory frameworks & econ. policy tools • Technology transfer and technology subsidies

19. Transferring Regulatory Frameworks • See assigned reading Technology transfer & subsidies • In class discussion.