A discussion Paper on the interplay between Economic development and the Environment

Presented for Panel discussion on Enhancing Environmental Protection for Sustainable Development at Wollega University, Nekemte

BY: Mekonnen Bersisa

June, 2010

Outline
Development Vs Growth: Concepts How we measure Economic growth and development Natural and Environment Resource Economic development Vs Environment resource What is sustainable development Poverty and the environment Conclusions

Growth Vs Development: Concepts

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

Growth Vs. Development: Concepts

ED refers to social and technological

progress It a in the way goods and services are produced, not merely an in production achieved using the old methods of production on a wider scale.

Measure of Economic Growth

Measure of Economic Growth

Approaches: 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 periods

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.

This might be a common picture

But this could be just around the corner!

Economic Growth

Shopping Hall in Saudi Dubai Skyline Arabia 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?

National Income: Problems with using GDP/GNP

Reliability of data? How accurate is the data that is collected? Distribution of income? How is the income distributed does a small proportion of the population earn a high % age of the income or is income more evenly spread?

NI Problems with using GDP/GNP

Quality of life? Can changes in economic growth measure changes in the quality of life? Does additional earnings power bring with it additional stress, increases in working hours, increased health and family problems? Impact of exchange rate? Difference in exchange rates can distort the comparisons need to express in one currency, but which one and at what value?

NI Problems with using GDP/GNP

Black/informal economy? Some economic activity not recorded subsistence farming and barter activity, for example Some economic activity is carried out illegally building work cash in hand, drug dealing, etc. Work of the non-paid may not be considered but may contribute to welfare charity work, housework, etc.

It might not be pleasant, but what he finds among the refuse could be all he has.

Economic Development
Development incorporates the notion of a measure/measures of human welfare As such it is a normative concept open to interpretation and subjectivity What should it include?

Normative concepts of Devt

Indicators of Economic Development

Measure of Economic Development

Human Development Index (HDI)

According to various issues of HDR, HDI : a socio-economic measure focusing on three dimensions of human welfare: Living a long and healthy life --- Life expectancy at birth Being educated--- Access to education, literacy rates Standard of living GDP per capita: Purchasing Power Parity (PPP)

Where Ethiopia stands?

According to the reports of UNDP, World Bank, UNICEF, WFP (2009) Population: 71.3 million Pop. growth rate: 1.8% GDP per capita: US$64.73 Pop. below poverty line: 50% Life expectancy at birth: 54.7years (HDR 2009) Infant mortality: 110.4 per 1000 HIV prevalence: 4.4%

Where Ethiopia stands?

Access to clean water: 22% Literacy rate: 49% (men), 34% (women) GDP-Real growth rate = 11.1% Gini index = 29.97% (0.3) Income distribution: the richest 10% hold 33.7% of national income Between 1995 and 2007 Ethiopia's HDI rose by 3.13% annually from 0.308 to 0.414 today

Country profile
The HDI of Ethiopia (0.414), gives the country a rank of 171st out of 182 countries see facts below given below

HDI Trends

Environmental Resources
Environmental resources are resources provided by nature that are indivisible. example: an ecosystem, an ozone layer, or the lower atmosphere They are not consumed directly, but people consume the services these resources provide (Kahn 1995:5).

Ethiopias position
Carbon efficiency = 0.15 CO2 emission/$GDP Deforestation; overgrazing; soil erosion; desertification; water shortages in some areas from water intensive farming and poor management (some environmental problems)

Economic system and the Environment

Air pollution Energy Air Sold Waste

Water Amenities Raw materials

Waste, Heat

Water pollution

Link
The knowledge of the relationship between the environment and the economy help us to design an appropriate policy that prevents undue depreciation of the value of these special assets, the environment, so that it may continue to provide aesthetic and life sustaining services.

Link
In line with this fact, modern ecologists have the stand point saying that the environment possesses a unique carrying capacity to support humans, and once that capacity is exceeded widespread ecological destruction occurs with disastrous consequence for humanity. The focus is no longer on individual societies but on the survival of the planet.

Economic system Vs. Environment

There have long been massive debate on the relationships b/n economic activity and the environment/natural resources: to put some: The Limit to growth model (Pessimists view point) The Optimist View points The Environmental Kuznets Theory

1.The Limits to growth

The Limit to growth (Meadow et al,

1972) came with the concept claiming that environmental limits would cause the collapse of the economic system in the middle of the 21st century. The issue was long been debated among economists (and other intellectuals) and the book was roundly condemn by most economists.

The Limit to growth

Yet it was a stimulus to the re-emergency of interest in natural/environmental resources on the part of economists in the early 1970s. A system dynamic was built to incorporate five major trends of global concerns: accelerating industrialization Rapid population growth

Limit to growth
Widespread malnutrition Depletion of non-renewable resources and A deteriorating environment

The interconnections and interdependency among these variables were shown by incorporating:

Limit to growth
i. a limit to the amount of land available for agriculture; ii. a limit to the amount of agricultural output producible per unit of land in use; iii. a limit to the amount of non-renewable resources available for extraction; iv. a limit to the ability of the environment to assimilate wastes arising in production and consumption , which limits falls as the level of pollution increase.

Limits to growth
The conclusions derived from the model were : 1.If the present growth trends in world population, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next 100 years. The most probable result will be a sudden and uncontrollable decline in both population and industrial capacity.

Limit to growth
2. It is possible to alter these trends and to establish a condition of ecological and economic stability that is sustainable far in to the future. The state of global equilibrium could be designed so that the basic material needs of each person on earth are satisfied and each person has an equal opportunity to realize his or her individual human potential.

Limit to growth
3. If the worlds people decide to strive for this second outcomes rather than the first, the sooner they begin working to attain it, the greater will be their chance of success. Standard growth model.doc

2.The Optimist model

As a reply for the limits to growth model, Herman Khan and his associate presented an alternative vision in a book titled The Next 20 years: A Scenario for America and the world. This vision is an optimistic one based in large part on the continuing evolution of a form of technological progress that serves to push back the natural limits until they are no longer limiting.

Optimist model
For the most part, the optimists placed faith in future technological progress to tap new sources of energy, overcome any resource limitations, and control pollution problems The saying of Necessity is the mother of Invention supports the basic optimist model

Optimist model
They conclude that: The future path of population growth is expected by Khan and his associates to approximate an S-shaped logistic curve.

Khans perspective on prospective of Humanity (in fixed 1975 dollars)

2176: 15 million people $300 trillion GNP 1976: 4.1 billion People $3.5 trillion GNP $1300 per capita $20,000 per capita

1776: 750 million people $150 billion GNP

3. Environmental Kuznets hypothesis

It has been hypothesized that the relationship between economic growth and some form of environmental degradation has a unique patter. Such a relationship is called an Environmental Kuznets curve (EKC) after Kuznets (1955) , who hypothesized an inverted U-shape for the relationship between a measure of inequality in distribution of income and the level of income.

EKC
The notion of the hypothesis is that Economic growth means higher emissions per capita until per capita income reaches the turning point, and there after actually reduce emission per capita. If the EKC hypothesis held generally, it would imply that instead of being a threat to the environment ( The Limit to growth), economic growth is the means to environmental improvement.

EKC
i.e. a countries develop economically, moving from lower to higher levels of per capita income, overall levels of environmental degradation will eventually fall.
Environmental degradation

EKC

Empirical evidences on the EKC hypothesis

The hypothesis has been area of empirical study employing econometric models, and thus debating conclusions have been made by various economists. Example Shafik and Bandyopadhyay (1992) : estimated the coefficients of relationship between environmental degradation and per capita income for 10 different environmental problems

EKC empirics
They conclude: Majority of the relationship proven to fit to the hypothesis But CO2 emissions, a major contribution to the greenhouse gases , do not fit the EKC hypothesis. Panayotou (1993) investigated the EKC hypothesis for: SO2,NO2, Suspended particular material(SPM) and deforestation.

EKC empirics
all the fitted relationship are inverted Ushaped Yet the basic question is weather this holds for the Long run or not!!!!

What is sustainable Development?

According to UNCED(1987) : the term sustainable development, refers to progress that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability means not only the survival of the human species but also maintaining the productivity of natural, produced, and human assets from generation to generation.

Sustainable Devt
Equity in economic efficiency. Knowing the capacity of the environment and using that capacity to the maximum of it and not beyond that. Survival of future depends on present generation.

What is sustainable Development?

There should be equitable distribution of resources among generations. There should not be absorptive limit.

Objectives of sustainable development

Economic objective:-promoting growth and efficiency e.g. income redistribution, employment, targeted assistance, increase of PCI of poor and decrease uncompensated future cost Social Objectives:- fulfilling peoples cultural, material, and spiritual needs in equitable manner (e.g. popular participation, consultation, pluralism) Environmental objectives:- maintaining and

Signs of unsustainable development Poverty- a billions of population lives under absolute poverty. The level of poverty is getting most horrible overtime Increasing world population and consumption of resources: - the world population increased from 4.4 billion in 1940 to 5.6 in 1970 and to 6.2 billion in 2000 --- Resource depletion: - in less than 200 years, the planet has lost 6 million km2 of forests.

Signs of unsustainable development Pollution:- an increase in industrialization leads to an increase in pollution which in turn leads to increase in cancer in developed countries Global climate change: - because of depletion of Ozone layer the world temperature has been increasing; rain fall decreases by 20% to 40% and world temperature has increased from 0.4% to 0.8%.

Poverty and the Environment

Both environmental degradation and poverty alleviation are urgent global issues that have a lot in common, but are often treated separately. Consider the following: Human activities are resulting in mass species extinction rates higher than ever before, currently approaching 1000 times the normal rate; Human-induced climate change is threatening an even bleaker future;

Poverty and the Envt

At the same time, the inequality of human societies is extreme: The UN 1998 HDR reveals that:
Globally, the 20% of the worlds people in the highest-income countries account for 86% of total private consumption expendituresthe poorest 20% a minuscule 1.3% ; To highlight this inequality further, consider that approximately 1 billion people suffer from hunger and some 2 to 3.5 billion people have a deficiency of vitamins and minerals

Poverty and the Envt

Yet, some 1.2 billion suffer from obesity One billion people live on less than a dollar a day, the official measure of poverty However, half the world nearly three billion people lives on less than two dollars a day. Yet, just a few hundred millionaires now own as much wealth as the worlds poorest 2.5 billion people

Poverty and Envt

Poverty and third world debt has been shown to result in resource stripping just to survive or pay off debts. For example, Nepal and Bangladesh have suffered from various environmental problems such as increasingly devastating floods, often believed to be resulting from large-scale deforestation.

Poverty and Envtal stress

Grinding poverty and impatience may spur people to strive for immediate gain, forgetting unclear. long-term sustainability, especially when property or use rights are

Poverty and Envtal stress

To survive, impoverished people:
degrade and destroy their immediate environment; Cut down forests for fuelwood and export earnings; overuse marginal agricultural land; migrate to shrinking areas of vacant land, and destroy habitat for biological species essential pharmaceuticals and seed varieties

for

Poverty and Envtal stress

Forests around the world face increased pressures from timber companies, agricultural businesses, and local populations that use forest resources. Some environmentalists, especially, also raise increasing populations burdens on the worlds current major source problems. from rich nations concerns about placing excessive resources as the of environmental

Poverty and Envtal stress

According to U.N.World Commission on Environment and Development (1987):
Impoverished people forego maintenance of vegetation, forests, and the biosphere. At subsistence levels of living, when peoples survival is at stake, hand-to-mouth economics prevail in which the future is infinitely discounted;

Poverty and Envtal stress

People overexploit natural resources and under invest in conservation and regeneration, Leading to resource depletion and species loss. In this economic climate, people make irreversible decisions, foreclosing options by logging and mining of rain forests and other economic options that reduce species (Panayotou 1993; Flavin 1989).

Conclusion poverty and envt Poverty and environmental stress end up with Vicious cycle of poverty

So what? (Green accounting)

Green accounting incorporates environmental assets and their source and sink functions into national and corporate accounts. It is the popular term for environmental and natural resource accounting.

Green Accounting
Conventional national accounts largely ignore: New or newly observed scarcities of natural resources, which threaten to undermine the sustainability of economic performance and growth, and Environmental degradation as an external (social) cost of economic activity .

Green accounting
Further critique refers to a possible distortion from counting environmental protection expenditures as an increase in national income, despite the fact that such defensive expenditure tends to maintain, rather than increase, the welfare of society. In response, the United Nations issued in 1993 and revised in 2003 a handbook on a System for integrated Environmental

Conclusion
Thus to bring sustainable development there must be a balance between the three objectives of sustainable development.

End

Thank You!