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10 Globalization and ‘localization’ and the
environment
1. Globalization, pollution havens and endogenous
environmental regulation
2. Interactions of trade reforms and domestic
policies: decentralization and sub-national
governments
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Globalization & growth: three observations
• Globalization  removal of impediments to trade
& factor flows in presence of other distortions
– Other policies and institutions; market failures
– Hence ambiguity of welfare effects
• Increasing incomes may generate ‘technique
effects’ in general
– Although no strong evidence for forests, NR
• But rising incomes also generate demands for ag.
protectionism (Anderson and Hayami 1986)
– Which effect will dominate?
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Trade policy reform and the environment
• Env’l effects of trade liberalization
– Pollution haven hypothesis
– Factor endowments hypothesis
– (Antweiler et al 2001)
• Country-specific reforms and outcomes (e.g. OEE
Chapters 6, 7, 8)
– Outcomes depend on nature of reforms
– And on endowments, institutions, laws & regulations
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International capital flows
• K inflows (outflows) affect resource endowments
– Rybczinski stories about aggregate endowments and
structure of production;
– Many FDI flows are sector-specific or have specificcharacteristics (embedded knowledge, global market
links, etc)
– Sector-specific rates of return on capital depend on
many factors:
• Rel. commodity prices (--> trade & domestic price policies)
• Laws, regulations, externalities (e.g.: Indonesian forest fires
and oil palm expansion)
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Globalization affects amenity values
• Changing structure of trade and production alters
opportunity costs
–
–
–
–
Cp. spatial expansion of the market
Tourism/ecotourism development as an example?
Local expression of a global technique effect?
Related: debt-for-nature swaps, private-public
partnerships in resource acquisition and land retirement
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International agreements on trade and envn’t
• WTO
– Permits LDCs to maintain agricultural & natural
resource protectionism (national & sectoral asymmetry)
– Tension between WTO trading rules and environmental
concerns (dolphin-tuna conflict)
– Interactions of WTO rules and domestic policies are
potentially important for sectoral and environmental
outcomes (e.g. W. Martin 2001; Huang, Rozelle and
Zhang 2000)
• WTO article XVII limits state trading, reduces ‘airlock’
between domestic and int’l markets
– But confers latitude in tariff rate quotas
• Cp. state marketing bodies in SS Africa
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‘Localization’, growth, policy & environment
• Setting: powers of subnational governments
– Restraints on trade, local taxation and provision of
public goods; environmental regulations
• Some LDCs have always had meaningful federal
systems (China, Brazil, India)
• In others, decentralization is accelerating
– De jure: Philippines, Indonesia, Bolivia, Mali, …
(WDR 2001)
– De facto: Indonesia, China …
How do center-local tensions affect env. outcomes of
growth & trade?
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Standard literature on local governance
• Theory: decentralization theorem (Oates 1972)
– Gov’t functions should be devolved to the lowest level
of administration at which externalities are internalized
– Extensions and additions (e.g. Tiebout)
• Applications: externalities and interjurisdictional
competition for jobs & investment -- a race to the
bottom? (Oates and Schwab, J. Pub. Econ 1988;
A. Levinson, JEEM 1997)
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LDC cases: tensions between national and
local objectives
• E.g. China
– Ownership: common assets, no conservation incentives
– Price ‘scissors’: undervaluation & inefficient use of
natural resource assets e.g. land
– Initially, national self-sufficiency in grains;
‘degenerated’ into regional self-sufficiency (Lin 1998)
• Overproduction in deficit areas unsuitable for grain prod’n
– H’hold responsibility system & subsequent reforms
address some issues
• E.g. incentives to maintain & improve irrigation systems
– But provincial self-suff. remains, is sanctioned (Young
2000)
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Practical challenges of decentralization
• Asymmetric distribution of information and
enforcement costs
– OSFA versus local environmental policies (e.g.
watershed management)
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•x (c1 , d1)
•z(c2 , d1)
•y(c1 , d2)
ci = unit abatement cost of sector i.
dj = transmission parameter at distance j from receptor site
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Spatial & sectoral costs
• Framing least-cost policies requires both sectoral and
spatial knowledge and policy tools
• If a single agency’s control area doesn’t extend to both, it
cannot implement a least-cost policy
• Environmental and resources policies are among most
obvious sources of policy failure
• When growth or trade --> changes in economic conditions,
optimal control areas may also change, requiring
institutional innovations or legal reforms
– E.g. design of land use regulations in livestock/pastoral systems
(Perrings 1987)
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References (not in OEE)
K. Anderson and Y.Hayami (1986): The Political Economy of
Agricultural Protectionism: East Asia in International
Perspective (Sydney: Allen & Unwin)
W. Martin (2001): State trading and China’s agricultural
import policies. Can. J. Agr. Econ 49
Huang, J.; S. Rozelle, L. Zhang (2000): WTO and agriculture:
radical reforms or continuation of gradual transition?
China Econ. Rev. 11.
World Bank (2001): World Development Report (Washington
DC: OUP) (re: decentralization)
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