Lecture 7, April 9, 2013

Transcription

1 ENVIRONMENTAL KUZNETZ CURVE mstly based n: Yandle, Vijayaraghavan, Bhattarai, The Envirnmental Kuznets Curve: A Primer. [additinal reading: Stern, The Rise and Fall f the Envirnmental Kuznets Curve which is quite technical, yu might still want t read at least the nn-technical parts] Kuznets (1955) hypthesized that incme inequality first rises and then falls with ecnmic grwth inverted U shape - hence the name EKC (Envirnmental Kuznets Curve) fr similar pattern in envirnmental plicy EKC first reprted in 1991 Grssman and Krueger s analysis f air quality measures a crss-sectin analysis f cuntries fr different years, investigating the claim that ecnmic grwth accmpanying the NAFTA wuld fster envirnmental degradatin the authrs identified a turning pint beynd which with higher incme air quality started t imprve (fr tw indicatrs SO2 and dark matter(smke)), ECK has becme standard fare in technical cnversatins abut envirnmental plicy the theretical framewrk is still in early stages (see e.g. Lpez 1994 r Munasinghe 1999, in Yandle et al.) What is the basic issue? - Can ecnmic grwth be the means t *eventual* envirnmental imprvement? - Can humankind have ur cake and eat it a prspect f achieving sustainability withut a significant deviatin frm business (Rees 1990, p. 435, in Stern) - Des the fllwing result (f an inverted U-shaped functin f incme per capita ) generalize t ther emissins? 1

2 Yandle et al - Where did the name Envirnmental Kuznets Curve cme frm? - Why Kuznets? - What have we learned abut the statistical relatinships between varius measures f envirnmental quality and incme? - D all aspects f envirnmental quality deterirate r imprve systematically with ecnmic develpment? - Des the degree f prperty rights and cntract enfrcement make a difference? S what is the intuitin? At the lw levels f per capita incme typical fr pre-industrial and agrarian ecnmies, nt very industrialized rather pristine envirnmental cnditins, relatively unaffected by ecnmic activities (i.e. relatively lw industrial pllutin) as develpment and industrializatin prgress, envirnmental damage increases due t greater use f natural resurces, mre emissin f pllutants, the peratin f less efficient and relatively dirty technlgies, als, typically, high pririty is given t increases in material utput with disregard fr the envirnmental cnsequences f grwth. As ecnmic grwth cntinues (and life expectancies increase) cleaner water, imprved air quality, and a generally cleaner habitat becme mre valuable Much later, in the pst-industrial stage, cleaner technlgies and a shift t infrmatin and service-based activities cmbine with a grwing ability and willingness t enhance envirnmental quality (Munasinghe, 1999). Saying all this may tempt ne t think that higher incmes alne will slve mst envirnmental prblems. Unfrtunately, life is nt that simple. If it were, transfers f incme frm richer t prer scieties thrugh freign aid, fr example wuld enable the recipients t avid envirnmental destructin. The mvement alng an envirnmental Kuznets curve is als a mvement thrugh a well-knwn set f prperty right statins! 2

3 In primitive scieties managed by traditin r tribal rule, part f the resurce base may be treated as a cmmns. With grwing scarcity, hwever, a time cmes when sme aspects f the cmmns becme defined as public r private prperty. As prpertyness expands, individuals have a greater incentive t manage, t cnserve, and t accumulate wealth that can be traded r passed n t future generatins. Thus, the Envirnmental Kuznets Curve is a prxy fr a prperty rights mdel that begins with a cmmns and ends with private prperty rights. Empirical Evidence: - Grssman and Krueger 1991 identified the turning pint fr SO2 and dark matter - Shafik and Bandpadhay (1992) fr SO2, suspended particulate matter, fecal clifrm [a bacteria - its aerbic decmpsitin can reduce disslved xygen levels if discharged int rivers r waterways] - Hettige et al using a cmpsed prductin txicity intensity index fund EKC fr txic intensity per GDP, nt fr per manufacturing utput Manufacturing, which is just ne part f GDP, did nt becme cleaner r dirtier as incme changed. Instead, manufacturing became smaller relative t services and trade in expanding ecnmies. This culd mean that dirty prductin shifts elsewhere!!! They fund that txic intensity in manufacturing has grwn much mre rapidly in ecnmies that are relatively clsed t internatinal trade - Suri and Chapman (1998) - fcused n energy cnsumptin shwed that as industrialized ecnmies matured, they mved t services and then imprted mre manufactured gds frm develping cuntries -> the glbal diffusin f manufacturing cntributes t envirnmental imprvements as incmes rise and develpment cntinues - Gkany 2001 Open ecnmies imprve their envirnments (anther evidence f psitive impact f internatinal trade?) - Crpper and Griffits (1994) as incme increases the rate f defrestatin levels ff - Panaytu (1995) finds that the turning pint fr defrestatins ccurs much earlier than fr emissins, because defrestatin fr either agricultural expansin r lgging takes place at an earlier stage f develpment than heavy industrializatin - Shafik (1994) studied fur determinants f envirnmental quality -> mixed results - Grssman and Krueger (1995) mre extensive empirical study, fcusing n water quality, fund a turning pint fr 11 ut f 14 selected indicatrs - fllwing up, Selden and Sng (1994) 2 G&K s air pllutants + xides f nitrgen and carbn mnxide fund EKC fr all 4, turning pints fr pllutants frm G&K are significantly higher than G&K s estimates (they use readings frm bth urban and rural areas, G&K nly urban) - Cle et al examined a wide range f indicatrs fr different cuntries and specifically n prperty rights - Panaytu (1997) examining EKC fr sulfur dixide fund that faster ecnmic grwth and higher ppulatin density d increase mderately the envirnmental price f ecnmic grwth, but better plicies such as mre secure prperty rights under a rule f law and better enfrcement f cntracts and effective envirnmental regulatins can help flatten the EKC and reduce the envirnmental price f higher ecnmic grwth. Similar results btained by Qin (1998), and Bhattarai (2000) 3

4 Cnclusin - there is n single EKC relatinship that fits all pllutants fr all places and times - The indicatrs fr which the EKC relatinship seems mst plausible are lcal air pllutants such as xides f nitrgen, sulfur dixide, and particulate matter. - there is n evidence t supprt the EKC hypthesis fr gases such as carbn dixide, which cause n harm lcally but may affect the glbal climate as they accumulate in the atmsphere - the evidence fr water pllutin is mixed - better plicies and enfrcement can help t flatten ECK and perhaps t achieve an earlier turning pint. A Critique f EKC - Stern, The Rise and Fall f the Envirnmental Kuznets Curve - currently, a dispute ver methdlgy and the reality f the EKC theretical and ecnmetric critique f EKC literature recent evidence suggests that develping cuntries are addressing envirnmental issues, adpting high standards (f develped cuntries) and smetimes perfrming better than sme wealthy cuntries mst f the EKC literature is ecnmetrically weak (Stern p. 1420) because it des nt accunt prperly fr the statistical prperties f the data used [serial dependence, stchastic trends] and issues f mdel adequacy [pssibility f mitted variable bias] when we use apprpriate techniques, we find that the EKC des nt exist (Stern p. 1420) e.g., it is clear that emissins f many pllutants per unit f utput have declined ver time in develped cuntries with increasingly stringent regulatins and technical innvatins. But the mix f residuals has shifted frm sulfur and nitrgen xides t carbn dixide and slid waste s that per capita waste (ttal) might nt have declined an effrt t reduce sme envirnmental impacts may just aggravate ther prblems. It seems that emissins f mst pllutants and flws f waste are mntnically rising with incme, thugh the incme elasticity is less than 1 and is nt a simple functin 4

5 f incme alne -- ther factrs, incme independent r time related effects [such as institutinal quality] reduce envirnmental impacts in all cuntries at all levels f incme (Stern p. 1420)) In rapidly grwing middle-incme cuntries, scale effects tend t dminate time effects Pure grwth, withut change in the structure r technlgy f an ecnmy, leads t mre pllutin and ther negative envirnmental impacts (scale effects) As ecnmies grw, utput mix changes frm mre pllutin intensive t less pllutin intensive industries -- input mix changes, emissin specific regulatins might change In wealthy cuntries, time effects can dminate scale effects (partially because grwth is slwer) Arrw et al. (1995) and Stern et al. (1996) argue that EKC relatinship (if there were any) might be partly r largely a result f the effects f trade in the distributin f plluting industries (develped cuntries specializing in human capital and manufactured capital intensive activities that might t sme extent explain reductin f envirnmental degradatin in thse cuntries) n cnsensual answer n the impact f trade in EKC literature - currently, als a dispute ver the apprpriate mix f ecnmetrics /statistics and thery, as well as the facts many envirnmental ecnmists take the EKC as a stylized fact that needs t be explained by thery. (Stern p. 1421) the EKC has never been shwn t apply t all pllutants r envirnmental impacts (Stern p. 1421) - A number f theretical mdels have been develped n hw preferences and technlgy interact t result in different time paths f envirnmental quality. (Stern p. 1422) Mst f these studies can generate an inverted U-shape curve f pllutin intensity but but the results are assumptin and parameterizatin sensitive Many studies als include additinal explanatry variables, intended t mdel underlying factrs such as plitical freedm, r utput structure, r trade these factrs, in general, turn ut significant at traditinal levels. it is nt clear what we can infer frm this bdy f wrk because f ptential fr mitted variable bias - Turning pint estimates differ widely (see Table 1, Stern p. 1425): - The nly rbust cnclusins frm the EKC literature appear t be that cncentratins f pllutants may decline frm middle incme levels, while emissins tend t be mntnic in incme. (Stern p. 1426) - It seems unlikely that the EKC is an adequate mdel f emissins r cncentratins. I cncur with Cpeland and Taylr (JEL 2004), wh state that: Our review f bth the theretical and empirical wrk n the EKC leads us t be skeptical abut the existence f a simple and predictable relatinship between pllutin and per capita incme. (Stern p. 1435) 5