Economic Development and
the Environment
1
Learning Objectives
 To examine the interrelationships between economic
development and the environment
 To understand the difference between economic growth
and economic development
 To understand the typical types of environmental
degradation in developing countries
 To appreciate the Pollution Haven Hypothesis and its
implications
 To examine the most appropriate policy instruments for
developing countries
 To understand the role of developed nations in ensuring
developing countries develop without large scale
environment destruction
2
Economic Development in Rich
Countries and Environment
 A significant reason for the fast pace of growth
and development of richer countries has been
the availability of cheap energy sources, esp. oil
 In the early years of industrialisation the now
developed countries experienced significant
environment problems especially in relation to
air quality
 For the most part, these issues have been
resolved for developed countries with the
establishment of stricter environmental
regulations
3
Developing Countries and the
Environment
 Global concerns especially around the climate change
issue has put significant pressure on developing
countries to reduce/limit its GHG emissions
 The imposition of strict environment regulations in
developing countries will almost certainly reduce their
rate of growth and development.
 Hence considerable opposition to stricter environment
controls
 Is it fair that developing countries that have contributed
the least to the climate change program be forced to
sacrifice economic growth and development?
4
Definition of Sustainable
Development
Sustainable development is development
that meets the needs of the present
without compromising the ability of future
generations to meet their own needs
In practice this means lower global
production and consumption now and
lower economic growth
Should developed countries contribute to
emission reduction in developing
countries?
5
Indicators of Economic Development
Two Important Measures of
Economic Growth
Gross Domestic Product (GDP)
Gross National Product (GNP)
http://www.youtube.com/watch?v=mZ4eKreH3I
7
Economic Growth
 Using measures of economic performance in terms of the value
of income, expenditure and output
 GDP – Gross Domestic Product
 The value of output produced within a country during a time period
 GNP – Gross National Product
 The value of output produced within a country plus net property
income from abroad
 GDP/GNP per head/per capita
 Takes account of the size of the population
 Real GDP/GNP
 Accounts for differences in price levels in different countries
Growth versus Development
 Economic growth may be one aspect of
economic development but is not the same
 Economic growth:
A measure of the value of output of goods and
services within a time period
 Economic Development:
A measure of the welfare of humans in a society
Economic Growth
 Using measures of
economic growth can give
distorted pictures of the
level of income in a
country – the income
distribution is not taken
into account.
 A small proportion of the
population can own a large
amount of the wealth in a
country. The level of
human welfare for the
majority could therefore be
very limited.
This might be a common
picture……
But this could be just around the
corner!
Copyright: unseenob, http://www.sxc.hu
Copyright: chinagrove, http://www.sxc.hu
Economic Growth
Economic Growth
Shopping Mall in Saudi Arabia
Dubai Skyline
Copyright : Christo Pacheco, http://www.sxc.hu
Copyright: zchizzerz, http://www.sxc.hu
 High economic growth fuelled through capital spending can hide a
number of underlying economic problems – how is the income and
wealth distributed? Who is doing the spending and will it ‘trickle down’
to the poor?
GDP is a poor measure of economic
development
GDP is a poor measure of economic
development
http://www.youtube.com/watch?v=QUaJM
NtW6GA&feature=related
GDP per person is often used as a
measure of development
13
Development
Human Development Index
Human Development Index (HDI)
 HDI – A socio-economic measure
 Focus on three dimensions of human welfare:
 Longevity – Life expectancy
 Knowledge – Access to education, literacy
rates
 Standard of living – GDP per capita:
Economic Development
 The Human Development index (HDI) provide better
measures of development
 The Human Development Report reveals how some
countries do better than others in turning income into
education and health opportunities and therefore into
higher levels of human development
 http://hdr.undp.org/en/statistics/data/hdi_gdp/
17
Other Measures?
Economic Development and the
Environment
 Environment Issues associated with developing
countries include
Deforestation
Water quality deterioration
Diminished air quality
Loss of biodiversity
 Strong priority on growth with negative impacts
on the environment
 World Bank estimates that 5-6 mn people die in
developing countries each year due to water
borne diseases and air pollution
 http://www.bigpicture.tv/videos/watch/dc912a253
19
Environment Kuznets Curve (EKC)
20
EKC
 In the 1990s several studies found evidence suggesting,
in the early stages of economic growth (with average
income rising from a low level) environmental
degradation increases,
 At some stage in economic growth (at some income
level) pollution ceases to increase and subsequently
decreases.
 Graphically, this relationship shows an inverted Ushaped curve when degradation per capita (y axis) is
plotted against GDP per capita (x axis).
 http://economics.dstcentre.com/Introduction%20to%20Environmental%20K
uznets%20Curve%20By%20Azmi%20Shahrin.pdf
21
Pollution Haven Hypothesis
Based on the view that “ developing
countries may be acting as pollution
havens, places where firms can move and
operate without the strict environmental
controls of the developed country” (Field &
Field, 2009. pg 406)
22
Pollution Haven Hypothesis: Two Parts
I.
II.
Stringent Environment Standards in
industrialized countries are causing some
firms especially ‘pollution intensive’ ones to
flee to countries with less stringent standards.
Developing countries have tried with some
success to attract pollution intensive firms
with the promise of lower pollution control
standards in the hope of bolstering their rate
of economic growth
(Field & Field, 2009)
23
Pollution Haven Hypothesis
Multinational firms are often blamed
Difficult to get conclusive data
Most developing countries do have
regulations regarding levels of pollution,
but these are not enforced
For more resources on the PHH see
www.aw-bc.com/titetenberg
24
Environmental Policies and Developing
Countries
 http://www.ideas4development.org/post/article/s
hould-we-impose-social-and-environmentalstandards-to-developing-countries-video.html
 Reducing environment disincentives of current
policies ( eg pesticide use)
 Establishing Property Rights
 Population Policy
25
What Type of environment policy for
developing countries
Command and Control V Market based
policies
Key Factor is cost effectiveness
But developing countries have relied more
heavily on command and control
strategies. Why?
26
The Role of Developed Countries
Technology Transfer
Debt for Nature Swaps
Environment Values in International Aid
Institutions
27
Summary
 There is a generally a positive relationship between rates
of economic growth and environment degradation
 There is also a need to differentiate between the concept
of economic growth and economic development
 A key theory regarding environmental degradation in
developing countries is the pollution haven hypothesis.
 There are a number of policy actions that developing
countries can take to improve environment quality
 Developed nations have a responsibility to developing
countries to ensure that they develop in a way that
causes least harm to the environment
28
Essential Reading
Field, B. and M.K. Field (2009),
Environmental Economics: An Introduction
(5th ed.) McGraw Hill. Ch.19
29