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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 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?
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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?
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Green GDP
Green GDP is an attempt by economists to measure the growth of an economy
compared to the harm production does to the environment.
This is done by subtracting the costs of
environmental and ecological damage done in a specific period of time from the gross
domestic product, or GDP, from that some time
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Economy and Environment
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Economy and Environment
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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 Arabia
Copyright : Christo Pacheco, http://www.sxc.hu
Dubai Skyline
Copyright: zchizzerz, http://www.sxc.hu
GDP is a poor measure of economic development
GDP is a poor measure of economic development
http://www.youtube.com/watch?
v=QUaJMNtW6GA&feature=related
GDP 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 measure
Focus on three dimensions of human welfare:
Longevity – Life expectancy
Knowledge – Access to education, literacy rates
Standard 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 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
Environment Kuznets Curve (EKC)
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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 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
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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 effectiveness
But developing countries have relied more heavily on command and control
strategies. Why?
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The Role of Developed Countries
Technology Transfer
Debt for Nature Swaps
Environment 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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