I. Development-environment interactions

1. I-A/B I. Development-environment interactions

2. I-A/B 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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8. I-A/B Summary • Growth itself increases environmental pressures • Structural changes alter these • In globalizing economies, policy reforms and investment flows may make crucial contributions

9. I-A/B 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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15. I-A/B 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

16. I-A/B 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.

17. I-A/B 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)

18. I-A/B 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

19. I-A/B • 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

20. I-A/B • 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

21. I-A/B 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.

22. I-A/B I. Development-environment interactions

23. I-A/B The ‘environmental Kuznets curve’ • With economic growth, pollution intensity first rises, then declines: z = z(Y/P) z’ > 0; z” < 0.

24. I-A/B 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

25. I-A/B 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.

26. I-A/B Factors affecting EKC shape • Exogenous market influences (‘globalization’) • Property rights • Externalities • Policy ‘accidents’ (e.g ISI strategies affecting ind’l & ag growth) • All have economy-wide implications • Spatial dimensions may also be important

27. I-A/B 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

28. I-A/B 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.