I-A/B I. Development-environment interactions A. Grow th, trade and the env ir onment: the long- term story B. Th e EKC and dev eloping coun try ev idence 1 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 2 I-A/B Annual growth rates of per capita real GDP (%) 6.00 5.00 East Asia & Pacific Latin America & Caribbean South Asia Sub-Saharan Africa 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 1961-70 1971-80 1981-90 1991-00 3 I-A/B Table 3.1: GDP sha res (%) major sectors, deve loping A sian countries GDP growtha Years Agric. Indus try (Mfg) Services China 6.42 1960-80 1981-90 1991-00 35 29 20 40 44 48 31 36 37 25 27 32 Indones ia 3.97 1960-80 1981-90 1991-00 42 22 18 23 37 43 10 16 24 35 40 40 Malays ia 4.12 1960-80 1981-90 1991-00 29 20 13 30 39 42 14 21 27 41 41 45 Phil ipp ines 1.04 1960-80 1981-90 1991-00 28 24 20 31 36 32 23 25 23 41 40 48 Thail and 4.34 1960-80 1981-90 1991-00 29 17 11 25 33 39 17 24 29 46 50 50 Vietnamb 5.37 Country 1960-80 .. .. .. .. 1981-90 40 29 26 32 1991-00 29 30 20 41 a. Real per capita inco me (1995 US$), annua l average 1970-2000. b. 1991-2000 . .. = not avail able. Sourc e: World Bank : World Development Indicators 2001 4 I-A/B Table 1.1: Population and urbanisation in A sia and deve loping regions Total Coun try Population ('000) 1980 China Urban 2000 1,004,168 1,282,437 Annua l Growth Ra te of: Population (%) Total Urban Total Urban 1980 2000 1980-2000 1990-2000 20.0 32.5 1.23 3.71 1.00 2.59 Indones ia 150,341 212,092 22.2 40.9 1.74 4.90 1.52 4.52 Malays ia 13,763 22,218 42.0 57.4 2.42 4.03 2.22 3.68 Myanmar 33,706 47,749 24.0 27.7 1.76 2.49 1.66 2.85 Phil ipp ines 48,035 75,653 37.5 58.6 2.30 4.61 2.17 4.06 Thail and 46,015 62,806 17.0 21.6 1.57 2.78 1.38 2.84 Vietnam 53,005 78,137 19.2 19.7 1.96 2.09 Sour ce: World Bank (2001 ): World Development Indicators 2001 1.69 1.69 5 I-A/B Table 3.2: Gross fi xed capit al formation (per cent of GDP) and foreign direct inve stme nt (per cent of GFCF), deve loping A sian count ries Country Item 1961-80 1981-90 1991-00 China GFCF FDI 29 0 29 2 34 11 Indones ia GFCF FDI 22 3 25 1 26 2 Malays ia GFCF FDI 20 13 30 11 36 15 Myanmar GFCF FDI 12 .. 15 .. 13 .. Phil ipp ines GFCF FDI 20 1 22 4 22 8 Thail and GFCF FDI 22 2 30 4 34 10 Vietnam GFCF .. 12 Sour ce: World Bank , World Development Indicators 2001 25 6 I-A/B Table 3.3: Total expo rts (X, % of GDP), manu factured expor ts (MFG, % of expor ts), and trade/GDP ratio (per cent), deve loping Asian coun tries Trade as % of Country Item 1961-70 1971-80 1981-90 1991-00 GDP, 2000) China X MFG 2 .. Indones ia X MFG 10 2 Malays ia X MFG Myanmar 4 .. 11 62 22 83 44.5 24 2 25 18 31 49 67.0 42 5 46 14 59 34 97 73 219.7 X MFG 13 1 6 6 5 6 1 10 1.1 Phil ipp ines X MFG 16 6 22 14 25 29 42 60 91.0 Thail and X MFG 16 3 20 16 27 42 46 71 108.8 Vietnam X .. .. 14 36 94.1 MFG 1 11 5 .. .. = not avail able. Source: World Bank : World Development Indicators 2001 7 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 8 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 9 I-A/B Real GDP growth and growth of industrial emissions, 1975-87 10 I-A/B Table 1.2: Air poll ution indicators in major Asian c iti es, 1995 Total Suspend ed Population Particulates (TSP) Coun try Cit y (‘000) (/m3) Sulfur Dioxide (/m3) Nitr ogen Dioxide (/m3) China Beijing 11,299 377 90 122 India Bombay 15,138 240 .. .. Calcutta 11,923 375 49 34 Delhi 9,948 415 24 41 Indones ia Jakarta 8,621 271 .. .. Malays ia K. Lumpur 1,238 85 24 .. Phil ipp ines Manila 9,286 200 33 .. Singapo re Singapo re 2,848 .. 20 30 11 23 Thail and Bangkok 6,547 223 Sour ce: World Bank (2001 ): World Development Indicators 2001 Note: WHO gu idelines fo r acceptable leve ls of poll utants are: TSP < 90 m3 SOX < 50/m3 NOX < 50 /m3. .. = Data no t avail able 11 I-A/B Table 1.5: WRI estimates of change s in natura l f orest and plantation cover Ave rage annua l Region 1990 (‘000 ha ) 2000 (‘000 ha ) chang e of na tural forest Nat. forest Africa Plantation Nat. forest Plantation ‘000 ha Per cent 697,882 4,415 641,828 8,038 -5,589 -0.8 36,201 149 34,869 263 -133 -0.4 S. America 903,199 7,279 863,739 10,455 -3,946 -0.4 Asia 495,340 56,117 431,422 115,873 -6,392 -1.3 —Tropical 289,820 22,486 233,448 54,624 -5,637 -1.9 33,631 197,974 61,249 -755 -0.4 Oceania —Temperate 05,520 Sour ce: Matthews (2001). 12 I-A/B Table 1.7: Human-indu ced land degradation rates, Asian deve loping coun tries Seve rit y o f hu man-induced land d egrad ation Country (per cent of total area) None Ligh t Moderate Seve re V. Seve re China 28 8 30 25 10 Sri Lanka 0 17 29 22 32 Indones ia 1 36 26 32 6 Malays ia 0 0 17 83 0 Phil ipp ines 3 0 18 3 3 Thail and 0 2 20 28 50 Vietnam 0 Sour ce: FAO (2000). 0 21 29 49 13 I-A/B Table 1.8: CO2 emi ssion s by sectoral sou rce, selected deve loping coun tries (thous and metric tons, 1991) . Coun try Bangl adesh From i ndus trial processes From l and u se chang e % From land use chang e 15,444 6,800 30 Indones ia 170,466 330,000 70 Malays ia 61,196 110,000 65 Phil ipp ines 44,587 110,000 71 Thail and 100,896 91,000 47 Vietnam 20,573 33,000 62 Sour ce: Estim ates reported in WRI (1995): World Resources 1994-95. 14 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 15 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. 16 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) 17 I-A/B Development and environment in LDCs 1. 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 18 I-A/B 2. 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) 3. Growth & policy reforms have very different implications for pollution and for NR depletion and degradation 19 I-A/B 4. 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? 5. 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 20 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. 21 I-A/B I. Development-environment interactions A. Grow th, trade and the env ir onment: the long- term story B. Th e EKC and dev eloping coun try ev idence 22 I-A/B The ‘environmental Kuznets curve’ • With economic growth, pollution intensity first rises, then declines: Pollution per unit o f income (z) z = z(Y/P) z’ > 0; z” < 0. Per capita in come (Y/P) 23 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 24 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. 25 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 26 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 27 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 decisionmaking 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. 28