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Economic Development and the Environment

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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

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

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Developing Countries and the EnvironmentGlobal 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?

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Definition of Sustainable DevelopmentSustainable 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?

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Indicators of Economic Development

Two Important Measures of Economic Growth

Gross Domestic Product (GDP)

Gross National Product (GNP)

http://www.youtube.com/watch?v=mZ-4eKreH3I

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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.

But this could be just around the corner!Copyright: chinagrove, http://www.sxc.hu

This might be a common picture……Copyright: unseenob, http://www.sxc.hu

Economic Growth

Economic Growth

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?

Shopping Mall in Saudi ArabiaCopyright : Christo Pacheco, http://www.sxc.hu

Dubai SkylineCopyright: zchizzerz, http://www.sxc.hu

GDP is a poor measure of economic developmentGDP is a poor measure of economic

developmenthttp://www.youtube.com/watch?

v=QUaJMNtW6GA&feature=relatedGDP per person is often used as a

measure of development

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Development

Human Development Index

Human Development Index (HDI)

HDI – A socio-economic measureFocus on three dimensions of human welfare:Longevity – Life expectancyKnowledge – Access to education, literacy

ratesStandard of living – GDP per capita:

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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/

Other Measures?

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Economic Development and the EnvironmentEnvironment Issues associated with developing

countries includeDeforestationWater quality deteriorationDiminished air qualityLoss 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

Environment Kuznets Curve (EKC)

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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 U-shaped curve when degradation per capita (y axis) is plotted against GDP per capita (x axis).

http://economics.dstcentre.com/Introduction%20to%20Environmental%20Kuznets%20Curve%20By%20Azmi%20Shahrin.pdf

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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)

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Pollution Haven Hypothesis: Two Parts

I. Stringent Environment Standards in industrialized countries are causing some firms especially ‘pollution intensive’ ones to flee to countries with less stringent standards.

II. 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)

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Pollution Haven Hypothesis

Multinational firms are often blamedDifficult to get conclusive dataMost 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

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Environmental Policies and Developing Countries

http://www.ideas4development.org/post/article/should-we-impose-social-and-environmental-standards-to-developing-countries-video.html

Reducing environment disincentives of current policies ( eg pesticide use)

Establishing Property Rights

Population Policy

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What Type of environment policy for developing countries

Command and Control V Market based policies

Key Factor is cost effectivenessBut developing countries have relied more

heavily on command and control strategies. Why?

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The Role of Developed Countries

Technology TransferDebt for Nature SwapsEnvironment Values in International Aid

Institutions

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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

Essential Reading

Field, B. and M.K. Field (2009), Environmental Economics: An Introduction (5th ed.) McGraw Hill. Ch.19

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