CHAPTER 1

East Asia economy nowadays:

HPAEs: miraculous growth 65-90 => East Asia Miracle.Characteristics: Rapid and sustain growth: >6% p.a. with low inflation. Grow 2 times faster than rest of East Asia, 3 times than Latin and South Asia. Per capita increase 2-4 times. Drastic dropped in poverty. Income inequality dropped in Japan and the 4 tigers. Asian countries shift from agriculture to non-agriculture from industry to service. 3 stages of development nation: agriculture predominates => industrial sector => service sector catch up. GDP rise => share of agriculture in GDP fall => share in industry, manufacturing, services of GDP rise.

Sources of Asian growth:1. Krugman thinks that Asia miracle is not miracle at all: There are many parallel between the rise of Soviet Union and the rise of Asian economy. The slowdown of Soviet Union is explained by 2 points: Soviet only has ability to mobilize resources, not use them efficiently. Input driven growth is inherently limited process.Asian growth seems to be driven by extraordinary growth in inputs like labor and capital rather than use them efficiency. Singapore: in 66-90s, Singapore grow 8,5 p.a., 3 times as fast as US. Through mobilization of resources (machinery, infrastructure, education), not increase efficiency: education standard of workforce upgraded sig., investment in physical capital, Cannot be repeated. Can be explained by increase in inputThere is startlingly little evidence of improvements in efficiency.The economic growth in NIC of East Asia has influenced the conventional wisdom about both economic policy and geopolitics.

Contribution to East Asia success:

1. High saving rate: High growth rates stimulus high saving. Government play important role in mobilizing saving.2. Reduce technology gap by investing huge investment in human capital, educate skilled worker + technological advanced investment.3. Rapid growth associated with rapid capital accumulation is in turn associated with high degrees of inequality => that growth would be accompanied by an increase in the degree of inequality.The rapid growth of asian raise 2 questions: what policies and other factors contributed to that growth? Can other developing countries follow to stimulate?Many studies of Krugman, Kim Lai, offer important lesson: policies that increase the accumulation of physical and human capital are likely to lead to more rapid growth.

(Stiglitz) East asian Miracle has many lessons: the use of incentive and organizational design within public sector to enhance efficiency and reduce corruption => sustain success. Making society function better: economic growth require the maintenance of macro and political stability => better business climate and effective use of human resources. Adaptability of gov policies: adapt to changing eco circumstances. Gov and market: Gov create market institution to make market more efficiency => ensure that high saving is invest effectively. Promoting accumulation of physical and human capital: Altering allocation of resources: support industry => attract FDI and domestic investors. Encourage firm to export. Gov supporting investment: Gov intervention in international eco relations may enhanced national interest, saving, promoted stability.

1. Worldbank (93): allocate physical + human resources to highly productive investments + master technology + government intervention. High rate of I => encourage I: Business-friendly environment: from tax policies favoring I + policies (avoid high tariff on imported capital goods) => keep capital goods price low. Creating infrastructure complementary to private I. G intervened deposit + lending rates higher than market clearing levels. Domestic Saving: Monetary policy => avoid inflation + high rir. Access Banking facilities easily => promote growth of deposits. G control + rise saving rates Human capital: Base: level human capital higher than low + middle income => focus on primary + secondary. Improve quality. G subsidy and support entrepreneur training program. Focus on acquisition and acquire tech for education investment.

2. Lee +Hong find that robust growth in East Asia mainly by capital accumulation: labor input, edu, tfp : positive. To continue growing => rise rate of factor accumulation + raise productivity.3. The growth in East Asia can be explained by neoclassical growth model => role of human capital + tech catch up.

4. Sachs et al. (2001) find that East Asias rapid growth was due to its (i) large potential for catching up; (ii) favorable geography and structural characteristics; (iii) demographic dividend(iv) economic policies (openness) and strategy that were conducive to growth.

1. Conditional convergence hypothesis: a country with low initial income per capita relative to its own long-run (or steady-state) potential level of income per capita will grow faster than a country that is already closer to its long-run potential level of output per capita.Poorer countries tend to grow faster than richer, poorer tend to catch up => grow more quickly.However, it is project to be slower in the future, 3 decades truoc th fast, 2 decades sau th chm. TFP: factor contribute more to GDP in next 2 decades: VN, malay, korea, indo, tha, Philip. Capital stock: used to be major sources , marginal productivity of capital declines => fall.

Economists attempting to understand the sources of East Asias growth tend to fall in 2 camps: Fundamentalists and Assimilationists. Fundamentalists (e.g. Paul Krugman): Growth was mainly input driven. The efficient allocation of resources played a big part in the success story. Input driven growth is not sustainable because there are limits to efficient resource allocation and because incremental growth in inputs is subject to diminishing returns. Assimilationists (e.g. Paul Romer): Growth was mainly driven by the acquisition and mastery of technology and the capacity to put ideas into practice. Page (94): 1. Get the fundamental right: Public policy help HPAEs to accumulate human and physical + allocation them better: accumulation, efficient allocation, and rapid tech catch-up. Macroeconomic stability + export growth: Low inflation (9% compared to the rest of low + middle income, small fiscal deficits => rise long-term planning and investment => exceptional Saving rates => remarkable recoveries of private investment. Fiscal disciplines + high public saving. Creating infrastructure + investment-friendly environment + tax policies to kept relative price => attract private investment Banking policy => increase integrity + be accessible to nontraditional savers => rise level financial savings. Expansion of Accumulation of physical + human capital: initial low inequality of income + public spending focus on primary + secondary, tertiary (science + tech education), Agricultural policy: productivity + not tax rural eco. Openness to foreign technology + FDI

2. Selective Intervention:

Promoting xport (highly selective interventions): shift from strong bias against xport => pro-export incentive structure but protect highly domestic market. Mild financial repression. Xport push trade policies: HK, Malay, Sing: free trade + Japan, Korea, Taiwan: mixed regimes => free for xport industries. Xchange rate liberalized + currency devaluedConclusion: Rapid accumulation (human + physical capital): Developing human capital: Initial low inequality of income + public spending focus on primary => stimulate expansion. Secondary, tertiary (science + tech education), Female literacy: more workers, lower fertility rates. Creating effective and secure financial systems: Banking policy => increase integrity + be accessible to nontraditional savers => rise level financial savings. Business-friendly environment: from tax policies favoring I + policies (avoid high tariff on imported capital goods) => keep capital goods price low. Creating infrastructure complementary to private I. Efficient allocation of capital: Flexible labour market: Less vulnerable + less responsive to organized labor demands. No minimum wage Emphasis on job generation, boost effectively demand for workers. => rise productivity + wage levels. Assisting market: credit for priority areas/ Technology catch-up + productivity: Actively seeking for foreign tech (openness to FDI => speeded tech acquisition. Industries policy promote high tech sectors(Japan, Korea: import protection + subsidy policy for capital + import inputs) Encourage export => change productivity (Pack, page 93) Manufactured xport => tech upgrading (firms with export greater chance to access modern tech through tech spillover effect)

Chapter 2:Agriculture sector is important:1. Rich source of labour input: important sources of labor for urban sector2. Main sources of investment and saving for capital formation: source of invested saving + saving from incomes, build-up capital and capital accumulation are require to start industries.3. Foreign exchange: enables the acquisition of foreign technology.4. Provide market for output of modern urban sector: depends on distribution of earned income from industrialization.5. Sources of food: developing countries rely on agri sector.Agriculture growth + tech innovation => reduce poverty in China.Leading sector for growth strategy in arg-based countries: Agriculture transformation feature:1. Arg share of output decline than share of employment: agriculture is a sink of surplus labor. Population growth + industrialization2. High labor productivity: average growth asia is 2.2% (80-I0)3. High land productivity4. Technology => improved yields 5. Composition of arg output shift to high value products: expand demand for livestock products + high value crops => labor intensive.

4 phrases agricultural transformation:1. Beginning: agriculture productivity/per rises.2. Surplus: productivity rise => surplus of labor => develop in non-agricultural sector through tax, factor flows, government intervention. 3. Integration: non-argi sector grow ( resources flow out of agriculture, rural factors and product market integrated better with those in the rest of economy => sector into macro economy by improving infrastructure + market eliquibrium linkages)4. Industrialization: 3rd phases successful => economy industrialized, role of argiculture is not # from others in industrialized sector.Agriculture sector: important in launching the high growth in Asian economies. Positive relationship between development strategy + rural economy => argi development + alleviation of poverty. Positive correlation farm size VS productivity. Farming intensity + improve land quality, irrigation, modern tech => improve productivity.Unequal land distribution/redistribution => farmers losing land => cycle poverty => low productivity and investment. Nowadays, agriculture output share decline faster ( growth in Agriculture slow down) ( agriculture: largest employer in Asia but not the largest sector gdp) because:1. Low-income elasticity of Demand for agri products:Engels effect: Income increases => consumers increase less their consumption for food products than the change in income.2. Sluggish process of agri products: Engel effect => slowdown in Demand for arg products.RISING PRODUCTIVITY IN AGRI1. Green Revolution:TechnologyIrrigation: more extensive irritation allow farmers to regulate flow of water, reduces flooding risk => able to plant multiple cropping and rise income.Better crop varieties: higher yields => suited to irrigated landFertilizers/pesticides/herbicides: fertilizers were most profitable can be used with varieties plant.Limitation: Farmer who have smaller plots + lower income to adapt fertilizer application => not exp full effect of its.Diminishing return to large-scale irrigation2. Labor productivity.Rapid rural-urban migration => reduce population pressure on rural. Rise demand for agri products + standards of living in city.

Currency exchange rate affect technology, labour intensive production technology => agriculture ( undervalue of currency => product cheaper => promote export, discourages imports).

Sustainable agriculture: food production that integrates the goals of env health, eco profit, social and economic equity. Satisfy human needs for food and fibre, enhance envi quality, non renewable resources and on farms resources efficiency, integrates natural biology cycle an controls, sustains economic viability,, improve quality of life for farmers and society.

Threat to sustainable agriculture:1. Land degradation: 74% land in South and SEA : erosion, wind, chemical pollution, a. Cause by over intensive-cultivation. Meet demand of basic foods, smallholder and rural grow crop by pushing into ecologically fragile areas intensively => vulnerable to erosion. 75% china area is land erosion.b. Over intensive livestock keeping => c. Cause by over use of mineral fertilizers. Lao, Vn, => use mineral fertilizer => destroy structure and nutrient balance of soil.2. Deforestation:a. Lao, VN, Russia had high deforestation 00-05 cause by high fossil price => cut off trees and rapacious timber industry. b. Mangrove ecosystems affect by shrimp cultivation => degrade water supply, reduce biodiversity,.3. Water:a. Over extraction: intrusion of saline water (40% in Asia is salinization)b. Contamination (fer + pes + animal wastes)c. Urbanization: rise pp => rise waste water.d. Biofuel for land: as Food security threaten by water withdrawal for factories: withdraw larger share of water than farmers.4. Biofuel rise => demand for bio fuel use for motor rise.a. Increase GHG emission: switch from tradition to biofuel crop => use fert, chemical,b. Crop from biofuel feedstocks => displace for food => rise prices.i. In 07-08: large biofuel production => surge food in US BRA EU.ii. China: CORN: 5. GMC: a. Benefits: higher yields, tolerance of herbicides, stronger resistance insects => reduces input cost.b. Disad: massive in tech + les glamorous area (organic agri) => affect the food security of the poor)6. Climate change: a. Higher co2 in air => photosynthesis => boost yield.b. Melting of Himalaya => feed river rise (Mekong, Indus, Salween)c. Temperature changes => time of growing seasons change => affect farmers.i. Change in Rainfall=> affect water supply.ii. Flood, drought, storm.Sea level rise: Salwater intrusion: high salt level in soil => draw water out of germinate seeds and roots -> Desiccation Destroy rice production: few low yields survive Toxic from salt constituents, chloride from salts => toxic to crops. Natri in soil structure make soil dense and compacted (soybean, vega crop is sensitive => can not tolerate much salitiny, corn can but cant grow next year. Temperature rise: affect pollination period (corn, wheat, rice). Dehydrate plants: Co2 rise: greater water use and high rate of photosynsthetic => good but reduce evapotranspiration => costly pest and weed infestion. Drought: increase pressure on water supplies, affect rice production => massive crop failure, water shortages, forest fires. Phi: increase climate change => can not depend on rainfall => oump water onto fields => financial implications. Reduce moister Wildfire: heat wave => Flood: inundations of land surface. Vietnam: change in climate => annual flood Mekong river delta occurs more often => causing low yield and low crop => loss of food stocks + crops in the fields. To the poor, it represent for a large proportion loss of their assets. Flood in Chao Phraya Rier basin 4 months of ravaging cost 72mil bath => take away opp of farmers to benefit from farming rice rise.

Element of food security: Food availability: sufficient Q of food through import and domestic + food aid. Food access: access by individuals to adequate resoirces. Acquiring appropriate foods for nutritious diet. Utilization: through adequate diet, clean water, sanitation, healthcare => reach nutrition demand. Stability: can access food anytime. Economic and climatic crises, agricultural season => need Stability.

Problem of Food Security:1. Food prices rice (rice, wheat, corn are main food energy of poors diet) => limit poor production progress + rise inequality.2. Affect Economic downturn => affect the poors income => loss employment + affordability to staple foods => rise recognition about agricultures vulnerability to climate change ( drought, floods,) => long-run efforts to ensure food security for national + household levels.3. Food price increase:a. Demand > Supply, stock depleted=> higher price level early 2ks. b. High volatility of food prices in 2k9 and II-I2.

Cause of food price change:

Supply side: severe water shortage affect soil erosion, water scarcity, urban encroachment => agricultural land base. Climate change (drought, aridity increasing in South + central Asia. Land + crop => biofuels use in US, EU. Productivity affect by crop diseases, climate change. High price of petroleum => higher input prices => high cost. Demand side: Income + urbanization change => change in dietary => Asian consume more wheat products => decline consumption of rice. High petroleum prices + policies => rise demand of cone, sugarcane, oilseeds. US ex rate (depreciation)=> exacerbated price change + dampened domestic price increase in countries appreciated currency comparing to $. Higher volatility of food prices is caused by: Vagary policy, global food stock declining, weather-related => volatility of food prices. Ill-advised policy responses: export restrictions + aggressive import => destabilized world market. Inelastic S+D + lower food stocks + weather => volatility. Substitution in D (rice + wheat as food, wheat + corn as feed) => improve some of volatility. Speculative investment in agri commodity markets (wheat, corn, ) => volatility RICE: policy + market psychology => price spike. WHEAT: weather (drought)+ stock ( yield variability) => Led international prices rise from 5 to 9 in 2007. CORN: biofuel application => diversion of corn rise rocket cause of mandate imposed by US => volatility when supply is tight. Strong rls between stock to use ratios and prices => lower stocks => market uncertainty when there are supply + policy shocks => volatility

IMPACT: food price contribute inflation => affect eco growth.

Household and country impacts:

Transmission of world price to domestic market (highest mainly in small pp countries): trade openness, domestic price controls, quality of infrastructure (transport, distribution costs). Transmission of rice + wheat low in Asia where large domestic food stock buffered local markets. Household level: Income higher, budget share of food declines. Higher incomes + urbanization => more diversified diet => decline consumption of cereals. SEA: income elasticity of D for rice negative cause of Asian diet changing. Government protect poor by tariff reductions, safety. Rural: generate employment + income => rise productivity. Higher food prices => shift to cheaper foods.

Farm level: Higher prices => raise Supply. People become poor due to increasing of food prices, even food-in secure situation. Higher prices => raise farm incomes of net seller, negative on small farmers.

GOVERNMENT RESPONSES:

Exporting countries: restrict trade (minimum xport prices, quota, variable xport taxes, outright xport bans) Export restrictions keep domestic price lower + politically symbolic effect. Importing countries: reduce tariff + tax on food imports. Absence import subsidie: Price transmission high, domestic prices fall + world price declined + good aid + Gov to G shipment arrived: Phi buy large inter purchase of rice for domestic supplies => contribute to world price spike + penalty rice hoarding. Phi, Thai, Viet: support producers to limit rising input cost ( fertilizer rise +=> live stock producer rice).

KEY CHALLENGES:

1. Refresh agricultural productivity growth in order to feed Asias ever more urban andProsperous population, a challenge that is enlarged by the simultaneous need to adapt to climate changes and, ideally, creates a more carbon-neutral agriculture;

2. Ensuring that small, resource-poor farmers have the opportunity to compete and thrive in modern food value chains; and

3. Tackling Asias persistent malnutrition in a sustainable, financially efficient manner

Climate change : intensified-rainfall, extreme weather measurable impacts on agriculture: economies, crop, farming systerms, natural resources (rising incomes, water scarcity, degradation of forest watersheds) The increasing of CO2 from fertilizer benefit for photosynthesis. Fate of small farmers in modern value chains: Small farms important (only 40% total farm area but produce large share of staple crops + play central role in sustain agriculture and reduce GHG emissions + economically viable with right tech and incentives

Industrialization

Factory Asia: model of regional production networks connecting factories in # Asian economies, produce parts and components that are then assembled, with final product shipped largely to advanced economies.

The rise of Asian manufacturing: evident in the increased shared of value-added in global manufacturing. Weak economic prospects + labor factor cost rising => erode price advantages.Asia focus mainly on global tech/innovators + labor intensive tradable.

Korea: from large trade surplus of labor intensive tradable => deficit cause higher wage make it Labor Intensive Tradable competitive =>more tech advanced product => trade surplus in global innovation for locals in automobile manufacturing => sustain.

Factory Asias rise in Japanese manufacturing: in 2k, trade surplus in global technologies + innovation. Electronics migrates a lot => trade surplus drop => machinery + automobile manufacturing becomes larger surplus for Global innovation for locals.

Todaro + smith (20II): structural change theory focus on mechanism by which underdeveloped economies transform their economic structure from heavy emphasis on traditional subsistence agri => modern and urbanized industrially diverse manufacturing and service economy.Factory Asia will be dominant driver of growth if its adapts to trends and transforms itself.

TREND AND ISSUE:

Changing global economic landscape + evolving consumer taste => affect D for factory Asias product.

1. economic prospects after global financial crisis: a. slow recovery + weak after financial crisis, high fiscal/deficits.b. Aging population => lower demand on manufacturing, higher in medical + health serv.c. Falling trade barriers (cheaper transportation cost, capital mobility improvement, efficient communication) => advanced economies shift to emerging economies.Policy Recommendation: support domestic Demand, forge effective regional + south-south cooperation, multilateral zingfree trade, smart incentives for targeting regional markets.2. Asias Expanding middle class => Factory Asia must cater their demand:a. Demand from middle class: population reach middle class status, two fold as in the past 90 vs 09 => car ownership in China + India sharply increased.Policy Recommendation: ensure Investment is adequate, as consumption D rise. Support inclusive + environmentally sustain growth.3. Quality and branding: for sustain growth, long-term reputation for quality and innovation depends on brand identities => must built strongerPolicy Recommendation: public-private dialogue to boost product identity.Make sure labor + safety standards comply with international norms + invest in standards lab for quality testing + assurance.4. Protectionism: weak economic growth + unemployment => protectionism.Policy Recommendation: ASEAN + global group like G20 keep protectionist tendencies.RISING PRODUCTION COST GRADUALLY ERODES TRADITIONAL FACTORY ASIA ADVANTAGES:

1. Rising complexity in Managing supply chains: Long + complex supply chain be more vulnerable to natural disaster + reputational risksPolicy Rec: public sector adopt policy that attract and promote regional FID.2. Wage rise => Narrowing wage differentials: a. Cheap labor => manufacturing growth. i. Income rise, wage surge 86% in Asia (2kI2) => wage gap is closing => Asia lost comparative advantage => companies has to relocate manufacturing.b. LDC difficult to join supply chains due to the closing wage differentials => technological advanced can position Asia in internationalizing production + job creation.Policy Rec: adopt accommodative policies to support private sector effort => move up value chain3. Managing xchange rate fluctuations: a. Safe haven status => Yen gained against $ => hurt Japan Manu competitiveness => have to use monetary policy to change it.b. Dong depreciation => difficult to manage manufacturing operations across several exchange rate regimes.Policy REC: develop financial markets + products to help private sector manage risk.4. Shortage of skilled workers:a. Wage rise + skill shortages => hurt Asia. Upgrading skills, work be more skill-intensive (scientist, engineers, skilled technicians Important developing manufacturing countries).Policy REC: adopt public sector measures => support skills management by education, enable private sector => reskill workers.5. Demographics: a. Japan and Asian tigers has low birth rate => Population is shrink => limit S of rural area labor => pressures on wage => need to maintain young + growing pp.Policy REC: countries in Asia cooperate + facilitate private sector => align skills to boost competitiveness.6. Taking domestic strengths abroad, production shift from high cost to lower cost countries:a. Bottle neck in infrastructure like VN + Bang (=> limit manufacturing type can be transferred, level of product sophistication) + minimum wage rise => hurt competitiveness of industries => shift from high cost to lower cost countries.Policy REC: support small medium enterprises into production networks.Launch public-private to facilitate private sector positioning of investment in lower cost locations in region.

New technology are changing nature of manufacturing:1. SOFTWARE become more important => comprise more share of value:a. Hardware replacements + product upgrade cycles =>margins for hardware manufacturers will be squeezed cause consumer are satisfied and simply update.b. Pp rich => need design + customized products. (iphone 200 for hard, 400 for design),Policy REC: support skills upgrading to facilitate value chain + product sophistication.2. New technologies: robotics + additive manufacturing: new era in manufacturing.a. Asia (Japan); largest market of robotics, rising wage, demographics change => rise factory automation in Asia.b. Additive manufacturing (3D printing): allow customers customized production at low cost => no need for machine tools or assembly lines from different components.Policy REC: invest directly in R&D + absorb new technology.

LEWIS MODEL:1. Traditional, overpopulated rural subsistence sector with zero marginal labor productivity (surplus labor).2. High productivity modern rural industrial sector, which labor from subsistence sector, is gradually transferred.

HPAEs and Structure change: Chowdhury +Islam (93) Share of manufacturing change in GDP: Share of manufacturing value added in GDP (korea, Sing, Taiwan) larger than average share of developing countriess MVA. Production structure is same to developed economies (except Hongkong declined, due to the relatively industrialized + important before 60s). Share of manufacturing employment: sustainable structural change in East Asia. Increase in Korea, Taiwan, Sing. Close rls between the average growth rate of MVA and structural change in manufacturing sectors.

KEY CONSIDERATION FOR INDUSTRIlization:1. Technology:a. Countries has limited capital and laboy in early => countries gradually move to capital intensive => move higher value added production.

CHAP 6:Sustainable development suggests that the crux of the matter is how to describe value so that it does not underestimate futures interests and utilities; future is given an equal treatment.Green economics is about provisioning for the needs of all people and nature as beneficiaries of sustainable economic transactions, but not as throw away inputs. Covers all aspects of sustainability: poverty, environmental degradation, green accounting, green GDP, business ethics and governance, green jobs, green generations, the underprivileged and special children, social justice and equity, climate change, gender inequality and women empowerment, mass consumption, biodiversity, and many more. improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In a green economy, growth in income and employment should be driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services.

Malaysia productivity in agriculture decline v GHG + Co2 uncontrolled => warmer. Adaptation projects such like dam construction, monitoring weather extremes, developing disaster preparation strategies and communal capacities buildingsMalaysias has plans for the climate change programmes for 2008 2012 (i) improving data management system of greenhouse gas emissions and ozone depleting substance consumption (ii) (ii) removal of barriers for increased energy efficiency and renewable energy initiatives implementation targeting at increased renewable energy mapping and physical capacity, establishing an institutional framework for implementing building energy efficiency and identification of energy efficiency potential in the transportation sector, and (iii) (iii) extension of rural electrification utilizing renewable energy sources targeting at establishing a policy framework for rural electrification on renewable energyReality

It has been known that in short term, growth was always being highly favour compare to environment. Governments, factories, organization look for short term, reality profit. Thus discussing environment problem is on scale of long-term.Asia has troubles in these sections: Freswater resources: water is being polluted, especially in high population city. Air quality: emerging air pollution and green houses gases problem.Land and forests: Degradation and deforestation. Asia used to have lots of virgin forest Now only around 4 percent.

Chung and Quah (2010): raised 3 problems that threaten green growth in Asia: 1. The problem of sitting environmentally unfriendly facilities (NIMBY) and NIAB syndromeComment by WIN7: AKA: The problem of where to place these facilities that are not friendly to environment Example: factories that burn rubbish, waste processor, nuclear factory. In short, facilities that people do not want them in their backyard.

2. The problem of accumulating waste garbage disposal. Asia has the habit of dumping waste, garbage in empty land instead of proccessing.

3. The problem of neglecting environmental intangibles in decision making.Comment by WIN7: Things that people tend to not put a price on.For example: quietness, fresh air, watching sunset, star gazing. If we dont put a price on certain things, people overlook it and treat it as valueless. Thus, many things environment related might be ignored because people did not put a price on it.Role of environment

1. Life support mechanism We cannot live without suitable environment. 2. Essential inputs for production activities. 3. Waste Receptacle The environment has a way to recycling the waste, renewing itself. Example: Water, air circulation etc Environment has carrying capacity.Comment by WIN7: How much it able to store waste before unable to restore itself. 4. Source of aesthetic beauty.Failure of the market for environmental goods.

Consult text book for deeper analysis.

The market for environmental goods fails because: Many natural resources are open access: We cant just simply stop people from using it. Considered common property, have no well-defined owners Improperly designed or inadequate property rights: Effective property rights must have 4 characteristic: Universal Exclusive: non-owners cannot use the resources. Transferable: Can be exchanged, transfer ownership. Enforceable.The ideas of effective property rights are ideal, far from reality. The limitation for environmental goods can be understood as this: Who owns the fish in open seas? Environmental goods like public goods, often indivisible, non exclusive, even invisible.Policies for sustainable development.Here are some suggestion approaches: Command and control: Popular, but criticized. Increase abatement costs, high monitoring cost.

Economic incentives For example: permit to release waste Carbon credit you can sell your carbon credit if you release under allow limitation.

Tenure reformComment by WIN7: Land for rent. Apply renting cost on owning land and properties.

Phase out subsidies Give out subsidies to those that successfully reduce environmental damage.

Improve institutional capacity. Improve government capacity to handle environmental issues.3 key sets of policies that contribute towards sustainable developmentChung and Quah (2010) 1. Reforming distortionary subsidies Carefully monitor and cut down inefficient subsidies to environmental policies. 2. Greening tax systems 3. Creating market for pollution control and efficient natural resource management. However, in Asia, this might be difficult due to bureaucracy and corruption.