PASIG CATHOLIC COLLEGE

Economic Development
Chap. 8. The Environment and
Development

Professor: Dr. Ronaldo A. Poblete, CFMP

 Environment and Development:
The Basic Issues

• Environmental issues affect, and are

affected by, economic development
• Classic market failures lead to too much
environmental degradation
• Poverty and lack of education may also lead
to non- sustainable use of environmental
resources
• Global warming and attendant climate
change is a growing concern in developing
countries.
 Environment and Development:
The Basic Issues

Sustainable development and environmental accounting

• Sustainable development has been defined as “meeting
the needs of present generation without compromising the
wellbeing of future generations”
• So, running down the capital stock is not consistent with
the idea of sustainability.
• Environmental and other forms of capital are substitutes
only to a degree; eventually they likely act as complements
• In developing countries, environmental capital is generally
a larger fraction of total capital.
• To know whether environmental capital is increasing or
decreasing, we need environmental accounting
 Environment and Development:
The Basic Issues

Sustainable net national product is :

NNI*= GNI-Dm – Dn

Where
NNI* is sustainable national income
GNI is Gross national income
Dm is the depreciation of manufactured
capital assets
Dn is the depreciation of environmental
capital
 Environment and Development:
The Basic Issues

More expansively, sustainable net national product

is :
NNI** = GNI-Dm – Dn- R-A
Where
NNI** is the revised NNI calculation
GNI, Dm, and Dn are defined as before
R is expenditure needed to restore
environmental capital
A is expenditure required to avert destruction
of environmental capital
(Note: R and A are components of GNI but not
NNI**)
The Poor as Both Agents and Victims of
Environmental Degradation

• Victims
• The poor live in environmentally degraded lands
which are less expensive because the rich avoid
them
• People living in poverty have less political clout to
reduce pollution where they live
• Living in less productive polluted lands gives the poor
less opportunity to work their way out of poverty.
• Agents:
• The high fertility rate of people living in poverty
• Short time horizon of the poor (by necessity)
• Land tenure insecurity;
• Incentives for rainforest resettlement
 Environment and Development:
The Basic Issues

• Sustainable development and

environmental accounting
• Population, resources, and the
environment
• Poverty and the environment
• Growth versus the environment
• Rural development and the
environment
 Environment and Development:
The Basic Issues

• Urban development and the

environment
• The global environment and economy
• Nature and pace of Greenhouse Gas-
Induced Climate change
• Natural resource - based livelihoods
as a pathway out of poverty: Promise
and Limitations
 Natural Resource Based Livelihoods:
Pathways Out of Poverty?

• In low income countries, high dependence

on natural resources; agriculture; animal
husbandry, fishing, forestry, hunting,
foraging
• But access to the benefits of resources
often very inequitable
• Poor losing control of natural resource
commons areas
• Many poor lack farmland, forests, cattle,
boats, and equipment
 Natural Resource Based Livelihoods:
Pathways Out of Poverty?

• Common village lands may be

“spontaneously” privatized
• Governments may overlook companies
logging, fishing, and mining, without regard to
local people or traditional rights
• Governments designate lands “protected”,
banning livelihoods, while corruption remains;
no incentive to take part in protection.
• A solution: “pro-poor governance” –
empowerment of the poor
 Environment and Development:
The Basic Issues

• The Scope of Domestic - Origin

Environmental Degradation: An Overview
• Environmental problems have consequences
both for health and productivity
• Loss of agricultural productivity
• Prevalence of unsanitary conditions
created by lack of clean water and
sanitation
• Dependence on biomass fuels and
pollution
• Airborne pollutants
 Rural Development and the
Environment: A Tale of Two Villages

• Representative African Village

• Desertification
• Low opportunity cost of women’s
time encourages waste
• Representative South American
Village
• Soil erosion
• deforestation
 Global Warming and Climate
Change

• The Intergovernmental Panel on Climate

Change or IPCC reports a dire picture for
developing economies
• Impact of global warming likely hardest on
the poorest countries
• Agriculture harmed in tropical and
subtropical areas
• Conflicts over natural resources may grow
• Range of adverse health impacts
 Some Impacts of Climate Change in
Developing Countries Identified by IPCC:

1.Prolonged droughts, expanded

desertification
2.Increased severity of storms with heavy
flooding and erosion
3.Longer and more severe heat waves
4.Reduced summer river flow and water
shortages
5.Decreased grain yields
6.Climate- induced spreading ranges of
pests and disease
 Some Impacts of Climate Change in
Developing Countries Identified by IPCC:

7. Lost and contaminated groundwater

8. Deteriorated freshwater lakes,
coastal fisheries, mangroves, coral
reefs
9. Coastal flooding
10. Loss of essential species such as
pollinators and soil organisms,
11. Forest and crop fires
 Global Warming and Climate
Change

• Problem primarily but not

exclusively caused by developed
countries
• Rapid industrial growth
especially in Asia
• Deforestation in developing
countries
Traditional Economic Models of
Environment Issues
• Privately owned resources
• Inefficiencies result from imperfections in property
rights
• Perfect property rights are characterized by
• Universality – all resources are privately owned
• Exclusivity or Excludability- it must possible to
prevent others from benefiting from a privately
owned resource
• Transferability – the owner of a resource may sell
the resource when desired
• Enforceability – the intended market distribution of
the benefits from the resources must be enforceable
Static Efficiency in Resource
Allocation
 Allocational Efficiency

• Equate PV of marginal net

benefits of last until consumed in
each period
• That is, for allocational efficiency,
consumer must be indifferent
between consuming last unit in
this period or in another period.
Optimal Resource Allocation
Over Time
Economic Models of Environment
Issues
• Common property resources
• Inefficiencies may arise because
resource is not privately owned
• Traditional models do not concern
themselves with equity and income
distribution
• Family farmers can benefit from
extended tenancy or ownership
• Who should buy publicly owned land
Common Property Resources
and Misallocation
 Understanding The tragedy of the
Commons

• Users fail to take account of an

externality: that as each uses more
the common resource the average
return lowered for the other users
• Traditional societies have
sometimes responded effectively
with social enforcement
mechanisms
Elinor Ostrom’s Common Property Design
Principles Derived from Empirical Studies

• Clearly defined boundaries of the

resource system
• Proportional equivalence between
benefits and costs for users
• Collective - choice arrangements
including those affected
• Monitoring with those who audit
accountable to users
Elinor Ostrom’s Common Property Design
Principles Derived from Empirical Studies

• Graduated sanctions
• Conflict -resolution mechanisms
• Recognition of rights to
organize
• Nested enterprises when
resources are parts of larger
systems
Economic Models of Environment
Issues
• Public goods and bads regional
environmental degradation and the
free - rider problem
• Internalization of externalities is
not easy
• Free rider problems
• Limitations of the public goods
framework
• Pricing mechanism
Public Goods, Private Goods, and
the Free-Rider Problem
 Urban Development and the
Environment

• Environmental problems of Urban Slums

• Health threatening pollutants
• Unsanitary environmental conditions
• Serious impact on poor
• Industrialization and urban air pollution
• Environmental Kuznets curve
• Pollution tax
• Absorptive capacity of the environment
• Severity of industrial pollution- impact on
health
Pollution Externalities: Private versus
Social Costs and the role of Taxation
Increasing Pollution Externalities with
Economic Growth
 Urban Development and the
Environment

• Problems of congestion, clean water, and

sanitation
• High health and economic costs
associated
• Drag on development
• Impact on poor
• Private wells have led to land
subsidence and flooding
• Impact on export earnings
The Local and Global Costs of Rain Forest
Destruction

• Rainforest loss contributes to global

warming
• Loss of biodiversity
• Loss of livelihoods for people living in
poverty who depend upon them
• Much waste in the process of forest clearing
• Thus, rainforest preservation (and
restoration) is a global public good- a
restorative mechanism for the environment
The Local and Global Costs of Rain Forest
Destruction

• Sustainable management of
rain forests is a priority
• Provide funds, debt relief to
help enhance biodiversity
• In addition, support for forest
preservation as climate change
mitigation
 Policy Options in Developing and
Developed Countries

What Developing countries can do?

- Proper resource pricing
- Community involvement
- Clearer property rights and
resource ownership
- Improved economic alternatives
for the poor
- Improved economic status of
women
 Policy Options in Developing and
Developed Countries

- Investments that yield returns

regardless of the shape of climate
change, such as a better road
network
- Industrial emissions abatement
policies
- Proactive stance toward adapting
to climate change
 Policy Options in Developing and
Developed Countries

• How developed countries can help

developing countries?
• Lower developing country costs
for environmental preservation
• Trade policies reduce barriers
subsidies
• Debt relief and debt for nature
swaps
• Development assistance
 Policy Options in Developing and
Developed Countries

• What developed countries can do for the

global environment?
• Emissions controls, including
greenhouse gases
• Research and development on green
technology and pollution control
• Transfer of technology to developing
countries
• Restrictions on unsustainable
production