Reviewer for 6 ,7,8,9

AGRICULTURAL TRANSFORMATION AND RURAL DEVELOPMENT

Status Quo
•Over 3 billion people lived in rural areas in 1997. This figure increased almost 3.3 billion by year 2010.
•People living in the countryside comprise considerably more than half the population of different
nations of the world.
•Vast majority of the world’s POOREST people are located in RURAL AREAS and engaged primarily in
SUBSISTENCE AGRICULTURE.

Food Projection
•The basic concern of the people in rural areas is SURVIVAL. Many of them are BYPASSED by whatever
economic progress has been attained.
•More than 800 million of these people do not have enough food to meet their basic nutritional needs.
If development is to take place and become self-sustaining, it will have to START in the RURAL AREAS in
general and the AGRICULTURAL SECTOR in particular.

Agricultural Systems
•Useful to view agriculture in a systems framework: inputs and outputs

•Inputs- labor, fertilizer, seeds, land preparation, land quality and tenure
•Outputs- production in form of mature crops and income earned and allocated products.

Agrarian Structure
•Agrarian structure refers to ways in which agricultural system is developed on the land and includes
land ownership, cropping system, and institutions
•Land tenure- who owns or controls the land
•Communal tenure- land held by village where villagers enjoy usufruct (right to use and profit)
•Latifundia –large estates where wage laborers are employed by private sector firms (agri-business), or
plantations held by public sector
•Freehold- outright ownership with land being transferred and divided equally among (usually males)
•Tenancy- farmers pay owners for use of land either in cash or kind (production)

Elements of Agriculture and Employment based Strategy of Economic Development

1.Accelerated output growth through technological, institutional and price incentive changes designed
to raise the productivity of small farmers
2.Rising domestic demand for agricultural output derived from an employment-oriented urban
development strategy
3.Diversified, nonagricultural, labor-intensive rural development activities that directly and indirectly
support and are supported by the farming community There is a stress onINTEGRATED RURAL
DEVELOPMENT.

5 Main Questions that need to be asked about 3rd World Agriculture and Rural Development
1.How can total agricultural output and productivity per capita be substantially increased in a manner
that will directly benefit the average small farmer and the landless rural dweller while providing a
sufficient food surplus to support a growing urban, industrial sector?
2.What is the process by which traditional low productivity peasant farms are transformed into high
productivity commercial enterprises?
3. When traditional family farmers and peasant cultivators resist change, is their behavior stubborn and
irrational or are they acting rationally within the context of their particular economic development?
4. Are economic and price incentives sufficient to elicit output increases among peasant agriculturalists
or are institutional and structural changes in rural farming systems also required?
5. Is raising agricultural productivity sufficient to improve rural life or must there be concomitant off-
farm employment creation along with improvements in educational, medical and other social services?
In other words, what do we mean by rural development and how can it be achieved?

Structure of 3rd World Agrarian Systems

Two Kinds of World Agriculture
1.Highly Efficient Agriculture of developed countries where substantial productive capacity and high
output per worker permit a small number of farmers to feed entire nations
2.Inefficient and Low Productivity Agriculture of developing countries where many instances the
agricultural sector can barely sustain the farm population, let alone burgeoning urban population, even
at a minimum level of subsistence

Sources of Small-Scale Agricultural Progress

1.Technological change and Innovation
2.Appropriate government economic policies
3.Supportive social institutions

Conditions for General Rural Advancement

1.Modernizing farm structures to meet rising food demands
2.Creating an effective supporting system
3.Changing the rural environment to improve levels of living

Conditions for Rural Development

1.Land Reform
•Farm structures and land tenure patterns must be adapted to the dual objectives of increasing food
production and promoting wider distribution of benefits of agrarian progress.
•HIGHLY UNEQUAL structure of land ownership is the single most important determinant of highly
inequitable distribution of rural income and wealth.
2. Supportive Policies
•The full benefits of small scale agricultural development cannot be realized unless government support
systems are created that provide the necessary incentives, economic opportunities and access to
needed credit and inputs to enable small cultivators to expand their output and raise their productivity.
3. Integrated Development Policies
Rural development though dependent primarily on small-farmer agricultural progress, implies much
more. It encompasses:
a.Efforts to raise both farm and nonfarm rural real incomes through job creation, rural industrialization
and the increased provision of education, health and nutrition, housing and a variety of related social
and welfare services
b.A decreasing inequality in the distribution of rural incomes and a lessening or urban-rural imbalances
in incomes and economic opportunities
c.Capacity of the rural sector to sustain and accelerate the pace of these improvements over time

Land reform may take the following forms:

a. Transfer of ownership to tenants who already work the land to create family farms
b. Transfer of lands from large estates to small farms, rural cooperatives or state farms
c. Appropriation of large estates for new settlement.

Why Land Reform is most urgent today:

1.Income inequalities and unemployment in rural areas have worsened
2.Rapid population growth threatens further worsening existing inequalities
3.Recent and potential technological breakthroughs in agriculture can be exploited primarily by large
and powerful rural landholders and result in an increase in power, wealth and capacity to resist future
reform.

THE ECONOMICS OF AGRICULTURAL DEVELOPMENT

•Economists often leave agricultural issues to the Agricultural Economics profession. But development is
not a high status enterprise in departments of Agricultural and Resource Economics. This leaves
agricultural development twice marginalized in the academe, and non-academic institutions are hard
pressed to fill the void, despite the heroic efforts of a few stalwart crusaders and organizations such as
IAAE. The following review of agricultural development thinking is offered in the spirit that
understanding of previous thinking may help to identify new frontiers that today’s researchers will find
suitably promising and challenging.
1. Fads and fancies in the Economics of Agricultural Development
•The Economic Development literature has gone through recognizable stages of fad and fancy.
The1950s and early '60s was dominated by the planning mentality. The rest of the '60s witnessed an era
of dualism wherein import protection of industry was justified by asserting that the marginal product of
labor in agriculture was relatively low. The '70s was the “growth with equity” decade. It was an era of
modernism wherein social engineers at the World Bank and elsewhere decried market failures and
proclaimed the need for redistribution in line with an imaginary social welfare function. The pendulum
swung to the opposite extreme in the 1980s. Government was thought to be a greater source of failure
than markets and the slogan, “gressivatize and get the prices right” ruled the day.
•As the 2 Washington Consensus faded with the Reagan-Bush era, a post-modern development
microeconomics evolved from economists’ fascination with the East Asian Miracle. The perceived role of
agriculture shifted dramatically as development thinking changed. In the dualistic view, agriculture could
be squeezed, even as industry was protected to accelerate the transfer of surplus labor to the modern
sector. Proponents of agricultural development (e.g. Mosher, 1966; Mellor, 1966; and Myrdal, 1968)
noted that levels-of-living of the poor would not be raised by turning the terms of trade against those
whose livelihoods depend on agriculture. Jorgenson (1961) showed how neoclassical forces could
account for the relatively rapid increase in manufacturing employment. Johnston and Mellor 2 went
further, describing how agricultural investments stimulate the larger economy through “pro-poor”
linkages – lower food prices, higher employment and real wages, and induced demand for non-
agricultural products combined with an economic surplus with which to fund their production.
•During the interventionist ‘70s, it was natural to seek favorable linkages by subsidies and market
interference in the name of Integrated Rural Development. The subsidies were largely delivered through
line agencies with little or no accountability (Binswanger, 2004) and discouraged the emergence of
spontaneous, unsubsidized institutions (Rosegrant and Hazell, 2000). Confiscatory land reform and a
whole range of input subsidies both blunted incentives and provided opportunities for rent-seeking by
coalitions of political and commercial elites. Infrastructure projects were characterized by huge
discrepancies between project design and realization (Repetto, 1986). Growth in agriculture progressed
nonetheless, aided in part by new technologies and rising factor productivity (Federico, 2005). As the
‘80s brought new enthusiasm for trade-led growth, agricultural development thinking became more
outward oriented (Clarete and Roumasset, 1987; Krueger et al., 1988; Gardner, 1996).
• Despite this, liberalization of agriculture lagged behind that of manufacturing (Federico, 2005). Rising
per capita incomes, increased capital-labor ratios, and agriculture’s increasing concentration and
commercialization all contributed to the resiliency of agricultural protection (Balisacan and Roumasset,
1987). As the participatory development movement of the ‘90s (and beyond) focused increasingly on
rural issues, community driven development (Binswanger, 2004) was the result. CDD is an approach that
aims to “empower communities and local governments with resources and the authority to take control
of their development” (Binswanger and Atyar 2003). The four core features of CDD are real
participation, improving accountability, technical soundness, and sustainability. The promise of CDD is
its recognition that political feasibility is essential for successful policy reform. Realization of its potential
will require further conceptual development and synthesis from systematic case studies, however. To a
large extent, the fads and fancies of each decade have been abandoned without a thorough diagnosis of
the reasons that they failed to deliver according to expectations.
• To some extent, new policies have been added without a corresponding dismantling of prior policies –
giving rise to the suggestion that development policy has been based on band-aid economics. Indeed
failing to learn the lessons of the history of development policies may have doomed us to 2 E.g.,
Johnston and Mellor (1961), Mellor (1986) Mellor and Johnston (1984), Mellor (1995). 3 repeat them.
For example, interventions during the ‘70s were based on the diagnosis of market failure and the
prescription of Pigouvian cures. This method commits a Nirvana Fallacy by failing to engage in the
comparative institutional analysis necessary to balance prospects for improved resource allocation with
unintended consequences and implementation failures (Demsetz, 1969). In post-modern
interventionism, market failure derives from misallocations in equilibrium, albeit without considering
voluntary mechanisms of governance and multilateral cooperation. Like the old fallacy, the new
nirvanaism suffers from misplaced exogeneity.
• The tendency to socially engineer reforms instead of facilitating cooperation persists. Just as the old
structure, conduct, performance paradigm was replaced by contestable market theory and other
innovations, the prospects for improved empirical work on developing agriculture await the
development of an appropriate structural model wherein farm organization, specialization between
family and hired labor, and choice of contracts across tasks and economic environment are understood
as parts of an endogenous whole.

2. Policies and Programs

2.1. Behavior: Risk and crop insurance
•Before Schultz’s Transforming Traditional Agriculture (1964), it was implicitly believed that peasant
farmers were traditional-bound, ignorant, lazy and backward. Their behavior was thought not to be
describable by conventional models of economic rationality. Schultz shattered that belief, showing that
poverty among peasant farmers derived from limited resources, including human capital, and from a
stagnant technology, not from sloth or decisionmaking failures. Just as Schultz’s book was catching on in
the late 60’s, however, high-yielding modern varieties (MVs) of rice and wheat were becoming available
in Asia and Latin America. Rapid early adoption of MVs was enthusiastically described as a “green
revolution.” By the end of the 1960’s, however, it became apparent that the MVs were not meeting
expectations.
•-The forecasted doubling and tripling of yields was rarely realized. The rate of increase in the incidence
of adoption slowed down much earlier than expected and when varietal adoption did take place,
farmers generally “failed” to adopt the packages of inputs and cultural practices that were
recommended by the international and national research and extension services. Agricultural
development professionals faced a quandary. On the one hand, they had recently been converted to the
view that farmers were economically rational. On the other hand, farmers failed to adopt production
techniques that were thought far superior to traditional practices. The agricultural development texts of
the day (Wharton, 1969; Mellor, 1966) suggested a resolution to the apparent paradox. Farmers were
rational but were assumed to be highly risk-averse, due to incomes in the proximity of “subsistence
levels-of-living.” New varieties and the associated packages of recommended practices were assumed to
be much more risky than traditional practices.

•In summary, low-income farmers are risk- averse (RA), modern technology is more risky, and low-
income farmers will therefore under-invest (UI) in modernization. Making subsidized crop insurance
available or mandating insurance will change the utility function, in particular truncating the lower end.
Among other things the indemnities obfuscate idiosyncratic transaction costs that the efficient decision
maker takes into account. In short, the insurance promotes getting-the-incentives wrong.

2. 2. Marketing, parastatals, and price policy

•Rashid et al. (2005) review the original motivation of parastatals and conclude that their dismantling
should be accelerated. Their case against parastatals is actually somewhat conservative. The traditional
case for parastatals presumes that governments can stabilize prices. Williams and Wright (1991) show,
however, that trying to insulate domestic markets from international price fluctuations is
counterproductive. Indeed the best means of stabilizing prices involves using international markets to
stabilize domestic prices (Clarete, 2004). Evidence to the effect that domestic prices vary less than
international prices should not be construed as implying that governments have succeeded in
stabilization.
• First, international markets are residual markets implying greater variability and that variability in the
two markets are non-commensurate (Siamwalla). Second, data on "domestic prices" already contains a
huge amount of averaging/smoothing. Third, such evidence may be selective. Some authors maintain
that domestic prices are not more stable. Fourth, there is a non-observed counterfactual. We don't
know how stable domestic prices would have been in the absence of government controls. Moreover,
price stabilization may decrease economic welfare. Some argue that stabilization is a political necessity,
but it appears that what is political is fooling some of the people into believing that government is in fact
stabilizing when they are in fact extracting rents.

2.3 Land and labor markets

•The efficiency case for land reform has traditionally been based on two planks – the relative
inefficiency of large, commercial farms in the utilization of labor, and the inefficiency of share tenancy. A
number of studies have suggested that hired labor is inefficient relative to family labor. 5 Utilizing family
labor economizes on recruiting and supervision costs, the latter because family labor stands to lose from
both quality and effort shirking. These labor 4 Roumasset, 2003. 5 See e.g. Binswanger and Rosenzweig
(1986), Binswanger, Deininger, and Feder (1995). 6 market imperfections are said to result in the
productive superiority of family farms (Deininger, 2003, p. 84) and to the characterization of hired labor
as inefficient (Otsuka, 2005). In contrast, Benjamin (1992) finds that hired labor is neither significantly
more nor less productive than family labor. The empirical case for inefficiency rests largely on the
notorious inverse relationship between size and productivity (Berry and Cline, 1979). Recent evidence is
mixed, however. Some studies confirm the inverse relationship (e.g. Burgess 2001 and Udry 1996).
• Others fail to reject constant returns to scale (e.g. Dow and Putterman, 2000; Wan and Cheung, 2001).
Even for samples wherein the inverse relationship exists, it does not follow that the allocation of labor is
inefficient, however. First-best efficiency predicts that landlords will equate the marginal product of
labor across diverse land qualities by adjusting the size of family farms thus leading to the observation of
higher per hectare yields on smaller farms (e.g. Roumasset and James, 1979). Indeed, Benjamin (1995)
shows that the inverse relationship is at least partly due to the bias induced by omitting land quality
from the regressions. 6 Deininger asserts, however, that the inverse relationship persists even after
controlling for land quality with proxies such as land value. But land value is not an accurate indicator of
land’s potential agricultural productivity, nor is distance-to-market and other proxies.
• Lacking a perfect measure, one cannot confidently reject the hypothesis that the inverse relationship
is due to land quality nor conclude that the relationship implies higher productivity of small-farm labor.
A second-best efficiency explanation for the inverse relationship is that the shadow price of labor for
farm households that hire labor at the margin is higher than that for households who supply all of the
farm labor, especially so for households who supply labor to other farms as well as their own (Sah,
1986). To the extent that the inverse relationship is sourced in this cause, no inefficiency is indicated. In
the second-best equilibrium, shadow prices vary over space, time, and economic agents. Using a first-
best standard of efficiency risks drawing policy implications that have efficiency-decreasing
consequences.

2.4 Rural credit

•Beginning in the 1950s and ‘60s, and expanding rapidly in the ‘70s, many governments concluded that
small farmers lacked access to adequate capital and established directed credit policies. These programs
typically provided subsidized credit to agricultural and rural banks, instructing the banks to lend to an
agricultural and rural clientele without exceeding controlled interest rates. Meyer and Nagarajan (2000)
show that loans were disproportionately given to large commercial clients, that there were high default
rates and that the financial repression repressed the efficient evolution of credit markets. 12 In
concluding that modest financial restraint was a key ingredient in the East Asian Miracle, Stiglitz and Uy
(1996) imply that the conclusions of the “Ohio School” may be too extreme, however. Making financial
markets 10 Deweaver and Roumasset (2001), show that, for parameters representative of the Philippine
case, the model predicts that optimal tenant’s share declines from one to 80% as the tenant goes from
risk neutrality to moderate risk aversion and increases back to one as risk aversion increases further.
2. Policies and Programs
•In Coasean terms, this is known as blackboard economics. 12As early as 1972, the US Agency for
International Development Spring Review for Small Farmer Credit found that “the major increases that
occurred in formal finance have mainly gone to larger farmers.” Similarly, Gonzalez-Vega (1984) found
that subsidized interest rates actually benefit the rich. Meyer and Nagarajan (2000) conclude that three
decades of rapid changes and government interventions have left “a fragile financial system with limited
outreach.” 9 work better and improve resource allocation without picking winners e.g. through savings
promotion, regulations to improve solvency, creation of financial-market institutions (e.g. bond and
equity markets), and broad-based regulations that direct increased credit to the corporate relative to
the household sector. The last policy is said to promote external economies, especially technological and
marketing spillovers. Promoting slightly lower interest rates may decrease savings by households but
increases savings among corporations.

• As the directed credit program waned, due to low repayment rates and inability of rural banks to
survive without large infusions of new subsidies, focus turned to the micro credit cooperative approach
where “peer monitoring” substitutes for collateral (Conning and Udry, 2005). Morduch concludes
however that while micro credit institutions are more profitable than the directed credit approach, they
are typically not sustainable without administrative subsidies. In order to analyze the consequences of
credit market policies, we need to model the provision of credit. The first challenge is to explain the co-
existence of formal and informal credit. Formal lenders also have a comparative advantage in utilizing
formal enforcement institutions, while informal lenders rely on repeated exchange and reputation
effects for enforcement (Roumasset, 1986). Hoff and Stiglitz (1998) provide a model in which formal
sector subsidies allow lenders to expand their informal lending activities. Said expansion results in loans
to less reliable and higher cost borrowers, resulting in a higher interest rate. Ghosh et al. (2000) obtain a
similar result from a model with differential bargaining power of lenders relative to borrowers, where
relationships are exclusive and interest rates are uniform.

Bose (1998) assumes that there are two types of informal lenders – the informed and the uninformed –
and replaces the assumption of one price per market with the assumption that lenders offer their clients
a menu of loan sizes and interest rates. When the government subsidizes credit, the perfectly informed
lender offering lower interest rates increases his lending activity, choosing to lend only to reliable
clients. The uninformed lender then faces a higher proportion of risky clients and lower expected profits,
and must raise his rates and ration credit. This allows the informed lender to increase his interest rates.
•Future models may elaborate on how the menu of contracts varies with both lender and borrower
characteristics. The directed credit approach and the new informational approach can be combined by
acknowledging government failure. Directed credit policies have artificially fragmented capital markets.
Further subsidies will worsen allocative efficiency unless severe interest rate and sectoral controls are
relaxed. By understanding the evolution of credit market deepening where it has been successful,
insights into a facilitation approach can be attained.

2.5. Research and extension

•Birkhaeuser et al. (1991) review 9 studies published between 1973 and 1988 on the rate of return to
extension. These estimates range from negative to 115%. Evenson (1998) reviews another 6 studies
conducted between 1973 and 1989. Between the two reviews, a total of 26 linear estimates of returns
to extension were reported. Of these 26 estimates, only 11 were significant at the 90% confidence level.
Of all of these, none found extension to increase total crop value by more than 27%. 10 Owens et al.
(2003) note, however, that these estimates tend to be biased upwards due to endogenous program
placement and two-way selection bias (agent selects farmer and/or farmer selects agent). Using
productivity and farmer data (e.g., crop production and yields, revenues, land used in agricultural
production, labor input, levels of education, rainfall, land quality, slope, soil type, and distance to
market) from rural Zimbabwe, Owens et al. find that agricultural extensions (as defined as regular visits
once or twice per year) raise the value of crop production by 15%.
•Inasmuch as these corrections cannot entirely control for within-location quality variation and
differences in farmer characteristics some upward bias may remain however. What is clear is that the
returns to extension can be substantial and that sometimes extension fails to deliver a positive return.
Accordingly research needs to shift from the question of how much extension to the question of how
extension services should be delivered. Research on farmer behavior relative to recommended practices
affords some tentative conjectures. First, top-down extension that attempts to coerce, cajole, or
subsidize farmers into adopting “accepted practices” is risky business. Extension agencies are typically
unable to tailor recommended practices in accordance with economic efficiency given the enormous
diversity in agro-climatic, economic, and institutional environments. Instead, extension should offer
farmers a menu of promising practices that may be suitable for their conditions and simultaneously
communicate those conditions and farmer concerns back to the research establishment. Second,
measures of extension agent performance are needed such that suitable agent incentives can be
designed and implemented. Until this happens, horizontal and vertical accountability in extension will
remain buzzwords.

3. Synthesis and New Directions

•The tendency to leap to policy implications from a ad hoc explanation of a stylized fact perseveres. Not
only do explanations need to be more complete in the sense described, but multiple explanations, with
potentially different implications, should be entertained. Politicians, and many academics, have the
incurable disease of top-downism. As recognized by Adam Smith, they are forever designing rules,
regulations, and institutions to be coercively imposed on the economy. 13 For example, despite decades
of failed land reform legislation that have resulted in untold waste and injustice, land reform efforts
continue to this day. The palliative for top-down tinkering with institutional design is an understanding
of institutional choice and evolution. More specifically, we need a theory of how agricultural
organization evolves from a self-sufficient peasant economy to a more specialized and intensive market
economy. As also envisioned by Adam Smith, the division of labor affords a window into market
development generally.
•“The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so
enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the
smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without
any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to
imagine that he can arrange the different pieces of a great society with as much ease as the hand
arranges the different pieces on a chessboard. He does not consider that the pieces upon the chess-
board have no other principle of motion besides that which the hand impresses upon them; but that, in
the great chess-board of human society, every single piece has a principle of motion of its own,
altogether different from that which the legislature might chuse to impress upon it. – Adam Smith
(1976), Theory of Moral Sentiments, VI.ii.2.17 Specialization is limited by the size of the potential
market, and the size of the market is limited by population, incomes, and transaction costs.

•On the other hand, a healthy respect for the role of efficiency in institutional change should not lead
one to ignore the conventional role of government in the provision/internalization of public
goods/externalities and the less conventional role of facilitating economic cooperation more generally.
In particular, investing in agricultural research and legal as well as physical infrastructure will stimulate
the coevolution of the division of labor and the corresponding institutional change. As specialization
proceeds, more and more complex patterns of coordination are facilitated. In Reardon et. al’s (2005)
supermarket metaphor, for example, farmers are increasingly linked to specific retailers by means of
complex chains that transform farm products over space, time, and form; thereby replacing the
cumbersome and costly method of indirect coordination via inventories.
• The transaction sector that produces such transformation actually grows, even as the per-unit costs of
coordination fall (North and Wallis, 1982). The agricultural development that ensues from this approach
is likely to have a high growth elasticity of poverty reduction (e.g. Lipton and Ravallion, 1995). Not only
does the facilitation strategy generate the traditional pro-poor linkages associated with lower food
prices and higher demand for labor, but it aids workers whose wages are net of lower unit transaction
costs as well as small farmers who benefit from falling transaction costs being subtracted from their
sales and added to their purchases. Central design may actually fragment economic connectivity and
stagnate efficiencyenhancing evolution. One lesson from the history of thought that bears learning (lest
one repeat it) is that the fads and fancies of development strategy have shifted one to another without
adequate appreciation of the successes and failures of previous stages.
ENVIRONMENTAL ISSUES AND DEVELOPMENT

What are Environmental Issues?

•Any human activity brings along with it, many side effects. One aspect of it could bring about
development while the other side of the coin could be a detrimental effect. These unfavorable changes
often lead to environmental issues that affect the natural balance of the environment.
•We can define environmental issues as the harmful effects of any human activity on the environment.
This includes both the biological and physical aspects of the environment. Air pollution, water pollution,
natural environment pollution, garbage pollution, etc. are some of the major environmental issues that
are causing immense concern.
•Environmental issues are harmful aspects of human activity on the biophysical environment.
Environmentalism, a social and environmental movement that started in the 1960s, addresses
environmental issues through advocacy, education and activism. current problems faced by the
environment- The carbon dioxide equivalent of greenhouse gases in the atmosphere has already
exceeded 400 parts per million. This level is considered a tipping point. "The amount of greenhouse gas
in the atmosphere is already above the threshold that can potentially cause dangerous climate change.
We are already at risk...It's not next year or next decade, it's now.“
•Report from the UN Office for the Coordination of Humanitarian Affairs: "Climate disasters are on the
rise. Around 70 percent of disasters are now climate related – up from around 50 percent from two
decades ago. These disasters take a heavier human toll and come with a higher price tag. In the last
decade, 2.4 billion people were affected by climate related disasters, compared to1.7 billion in the
previous decade. The cost of responding to disasters has risen tenfold between 1992 and 2008.
Destructive sudden heavy rains, intense tropical storms, repeated flooding and droughts are likely to
increase, as will the vulnerability of local communities in the absence of strong concerted action."
"Climate change is not just a distant future threat. It is the main driver behind rising humanitarian needs
and we are seeing its impact. The number of people affected and the damages inflicted by extreme
weather has been unprecedented."
• Report from the UN Office for the Coordination of Humanitarian Affairs: "Climate disasters are on the
rise. Around 70 percent of disasters are now climate related – up from around 50 percent from two
decades ago. These disasters take a heavier human toll and come with a higher price tag. In the last
decade, 2.4 billion people were affected by climate related disasters, compared to1.7 billion in the
previous decade. The cost of responding to disasters has risen tenfold between 1992 and 2008.
Destructive sudden heavy rains, intense tropical storms, repeated flooding and droughts are likely to
increase, as will the vulnerability of local communities in the absence of strong concerted action."
"Climate change is not just a distant future threat. It is the main driver behind rising humanitarian needs
and we are seeing its impact. The number of people affected and the damages inflicted by extreme
weather has been unprecedented."
• To tackle these environmental issues, protecting the environment is very vital. This not only helps in
preventing the detrimental effects but also helps us to conserve the natural resources and natural
environment for future generations. Protection of the environment is not only a social movement but is
also backed by various laws that have been passed to ensure that humans do not misuse the resources
any longer

Global Environmental Issues

•Global environmental issues are those which are beyond the scope of a single state to address and
instead require concerted action from the global community. Some examples derive from sharing a
common global resource, such as global warming or ozone depletion, while others emerge from the
cumulative impacts of individual state-scale acts of degradation – such as global biodiversity loss,
fisheries depletion, or deforestation.
•It is generally accepted that the Global North is causing more environmental degradation than the
Global South due to the North’s higher rates of consumption. The resources consumed by one urbanized
North American, for example, may be hundreds of times that of a rural family living in a remote African
or Asian community.
•As Southern nations develop, however, consumption rates are increasing therefore adding to the
pressure being put on the global environment. It remains to be seen, for example, whether the earth is
capable of sustaining a global population that consumes resources at the rate of the Global North. Such
concerns raise interesting dilemmas about how to reduce Northern consumption levels as well as the
direction of Southern development.
•These concerns are borne out most vividly in contemporary debates regarding global warming with
most Northern nations signing the Kyoto Protocol and making a commitment to reduce their emissions.
States in the Global South, however, have been reluctant to make such commitments believing
conservation priorities are of secondary importance to economic development.

Different Types of Environmental Issues

•Some of the major environmental issues that are causing immense concern are environmental
pollution, air pollution, water pollution, garbage pollution, noise pollution, deforestation, resource
depletion, climate change etc.
•Most of these have resulted as a result of human overpopulation and also the indiscriminate of natural
resources without conserving them.

Pollution and its Types

•Pollution in all forms is a major environmental issue in India. Any undesirable change in the
environment, air, water, land, soil, etc. can be termed as pollution. These changes could be in the
physical, chemical or even biological changes. The agents that bring about or cause this pollution are
called pollutants.
•In India, there are many laws that help in curbing pollution. These laws are intended to protect the
environment as well as improve its quality. One such act is the Environment
•Air Pollution – When the atmosphere is filled with toxic gases released as result of industrial or other
economic activities, it results in polluting the atmosphere and the air in the environment. This is nothing
but air pollution.
•Water Pollution – With the natural water resources depleting day by day, water is a scarce commodity.
But, even in these times, the water sources are polluted by pollutants from various sources, making
them unfit for human consumption.

Lists of Environmental Issues

Environmental issues are issues related to human impact on the living environment, habitats, land
use and natural resources. The following alphabetical list shows some of the main known environmental
issues by major topic title:
•Air quality (air pollution, ozone pollution, ties to human health with asthma, diesel emissions, etc.)
•Biodiversity (conservation of biological diversity)
• Environmental health (poor environmental quality causing poor health in human beings, bio-
accumulation, poisoning)
•Environmental impact assessment (one major current form of assessing human impact on the
environment)
•Food safety (including food justice, impacts of additives, etc.)
•Genetically modified organisms and other forms of genetic engineering or modification
•Global environmental issues (in recognition that environmental issues cross borders)
•Global warming
•Grassroots solutions (local and regional environmental issues solved from the bottom-up)
•Habitat loss (destruction, fragmentation, changed use)
•Intergenerational equity (recognition that future generations deserve a healthy environment)
•Intensive farming and bio-intensive farming
•Invasive species (weeds, pests, feral animals, etc.)
•Land degradation
•Land use / Land use planning (includes urban sprawl)
•Natural disasters (linked to climate change, desertification, deforestation, loss of natural resources
such as wetlands, etc.)
• Nuclear energy, waste and pollution
•Ocean acidification (includes algal bloom, coral reef loss, etc.)
•Over-exploitation of natural resources (plant and animal stocks, mineral resources (mining), etc.)
•Overfishing (depletion of ocean fish stocks)
•Ozone depletion (CFCs, Montreal Protocol)
•Pollution (air, water, land, toxins, light, point source and non-point source, use of coal/gas/etc.,
reclaimed land issues)
•Population growth and related issues, like overpopulation, access to reproductive control (reproductive
health), etc.
•Reduce, reuse, repair and recycle (ways to reduce impact, minimise footprint, etc.)
•Soil conservation (includes soil erosion, contamination and salination of land, especially fertile land; see
also desertification and deforestation)
•Sustainability (finding ways to live more sustainably on the planet, lessening human footprint,
increasing human fulfillment with less impact) (see also sustainable development and poverty
alleviation)
•Toxic chemicals (persistent organic pollutants, prior informed consent, pesticides, endocrine
disruptors, etc.)
•Waste (landfills, recycling, incineration, various types of waste produced from human endeavors, etc.)
•Water pollution (fresh water and ocean pollution, Great Pacific Garbage Patch, river and lake pollution,
riparian issues)
•Water scarcity
•Whaling (a specific issue due to its worldwide nature, treaties and persistent campaigns to prevent it;
other cetaceans also impacted)

SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL ACCOUNTING

Concepts Clarification
•Environmental Accounting or Environmental Management Accounting (EMA)? This is a question that
was raised during the study we have done about environment and accounting. Does another question
with a difficult answer relate to another dilemma? Environmental Accounting or Green Accounting?
Which will be the best title for this area of accounting? Are there substantial differences if different titles
are used? How should EMA be defined? Which are the objectives of EMA? Do these differ from the
general objectives proposed and accepted by accounting? Can the environmental performance be
measured? Is the EMA a part of the Total Management Quality?
•We only mentioned some questions whose answers are considered very important because a
conceptual framework can be elaborated. In this research we proposed some questions and we try to
answer to them. Some terms must be discussed in order to clarify the concept of EMA. The World
Commission on Environment and Development (WCED, 1987) popularized the concept of Sustainable
Development (SD) as a normative goal for a long-term policy. SD was defined as a development that
„meets the need of the present without compromising the ability of future generations to meet their
needs”.
Concepts Clarification
•This definition is based on two concepts: intra-generational equity issues (present) and development
over time (future). SD is composed of two terms: sustainable and development. The problems with this
concept are not so much with the word „sustainable”, but with the term „development” (Pearce &
Warford, 1993). SD is a dynamic concept that relates to inter-generational issues. SD is about the
development of social welfare over time. Factors that can explain development are the human, natural
and social capital. These factors are also important in determining if a development is sustainable or
not.
•This definition is based on two concepts: intra-generational equity issues (present) and development
over time (future). SD is composed of two terms: sustainable and development. The problems with this
concept are not so much with the word „sustainable”, but with the term „development” (Pearce &
Warford, 1993). SD is a dynamic concept that relates to inter-generational issues. SD is about the
development of social welfare over time. Factors that can explain development are the human, natural
and social capital. These factors are also important in determining if a development is sustainable or
not.

Sustainable development and environmental accounting: concepts, trends and quality of accounting
information
•Accounting and managerial accounting can be considered as producers of information in the benefit of
internal and external users that are disclosed in an appropriate form based on the relevance as a quality
of accounting information. The managerial accounting elaborates and presents relevant information for
decision making in order to achieve the goals proposed and accepted by the organization. The
management accounting information can be measured in monetary and non-monetary terms. In order
to measure information in monetary terms, the cost will be a basic element. Generally the cost is
calculated following specific procedures set by the Cost Accounting. Can the Cost Accounting be
considered as a part of the Managerial Accounting or will it be an independent part? In our opinion the
Cost Accounting must be a part of the Managerial Accounting in order to calculate different type of costs
for the need of management as a support for decision-making.
•The environment concept can be defined from three points of view:
1)The environment represents the assembly of natural resources;
2)The environment represents the interaction between the natural resources and the human activities;
3)The environment is the assembly of all available resources.
•According to the three points of view, the environment accounting can be structured as follows:
1)Accounting will take into consideration only the expenses and investments related to the natural
resources protection;
2)Accounting takes into consideration, besides the expenses and investments regarding the
environment protection, a series of additional activities that can directly or indirectly compete with the
creation of impacts such as: expenses and investments regarding the transports, global warming,
urbanization, agriculture and the raise of animals;
3)The accounting system is radically changing; therefore an environment/social balance sheet is
imposed, in order to show all the flows of expenses destined to supporting the sustainable development
of the area.
•We consider that the Environmental Accounting should be analyzed based on the classification of
accounting users into two categories:
1)Environmental Accounting (EA) as an accounting for external users that had to be informed in
monetary units once also in physical units;
2)Environmental Management Accounting (EMA) organized in the benefit of internal users in monetary
units and in physical units.

THE REPORTING INFORMATION

Reporting Information
•How to define environmental performance management (EPM)? How to calculate EPM? What kind of
indicators should be disclosed in environmental reports? These questions have been represented the
starting point in our research. EPM represents the measurement of interaction between business and
the environment (Bennet & James, 1997). SD indicators (SDI) generally are national indicators. A lot of
countries accept the capital approach to measuring SD. A handbook on the System for Environmental
and Economic Accounts (SEEA, 2003) characterize SD as follows SD: „SD is the development that ensures
non-declining per capital national wealth by replacing or conserving the sources of that wealth; that is
stocks of produced, human, social and natural capital” (SEES, 2003: 4).

The total capital can be divided in four types: natural, economic (produced and financial), human and
social capital.
•The economic capital (real) is the produced capital that also includes the financial assets.
•The natural capital can be divided in three recognized categories:
• Natural resources;
• Land;
• Ecosystems

SCOPE OF ENVIRONMENTAL DEGRADATION: AN OVERVIEW

Nature of Environmental Economics

•Environmental economics is considered both as positive and normative science. It also covers both
micro and macro aspects of different pollution problems.

Positive and Normative aspects:

•Environmental economics is an application of scientific theories and general application of welfare
economics. When we study the cause and effect relationship, it covers the positive aspect. For example,
the laws of thermodynamics are equally applicable to economic process.
•If the problem is related to policy measures, then it is considered as normative aspect. Therefore,
environmental economics is a normative science because it prescribes the goals of environmental policy.
As pointed out by B. C. Field, “Environmental degradation is the result of human behaviour that is
unethical or immoral. Thus, for example, the reason people pollute is because they lack the moral and
ethical strength to refrain from the type of behaviour that cause environmental degradation. If this is
true, then the way to get people to stop polluting is somehow to increase the general level of
environmental morality in the society.” Field calls it as moral approach to environmental issues.

A Study of Micro and Macro Aspects:

•Economists such as Pigou, Hoteling and Nordhaus have formulated their models in relation to
individual firms and natural resources. Therefore, it covers the micro and macro aspects of the pollution
problem. There are many examples of micro and macro aspects of environmental problems in the
present times.
•We generally observe crowded market places, industrial units, and even residential areas in a city like,
Delhi. We do not get enough fresh air at these places. Its solution lies in micro level planning. On the
other-hand, when the pollution problem is related to the economy as a whole such as rise in
temperature, then it is related to macro aspect of environmental planning.
•Environmental economics draws more from microeconomics than from macroeconomics. It focuses
primarily on how and why people make decisions that have consequences for the natural environment.
It is concerned also with how economic institutions and policies can be changed to bring these
environmental impacts more into balance with human desires and the needs of the ecosystem.

As Static and Dynamic:

•Classical and Neoclassical economists have applied both static and dynamic approaches in relation to
environment. They have applied economic welfare approach to environment which is static in nature
whereas under dynamic approach, they focus on forests, minerals, fossil fuels and water resources etc.

As A social science:
•Environmental economics deals with economic and managerial aspects of pollution and natural
resources. It interacts between human beings and their physical surroundings. It studies the impact of
pollution on human beings and suggests national utilization of resources in a proper way so that there
may be an increase in social welfare or minimization of social costs.
•Environmental economics is also concerned, with the natural environment, but not exclusively so. For
example, man-made and cultural or social environments may also be a part of the nature of
environmental economics.

Environmental Pollution as an Economic Problem:

•Environmental pollution is an economic problem because it requires us to make choices and to resolve
conflicts of interests. It is an economic problem because the means by which pollution can be reduced
are themselves resources using. Further, it also reduces the value of some resources that society has at
its disposal.
•It means that pollution is a problem of scarcity in terms of waste disposal capacity. The main problem
of choice is how to utilize the scarce resources in relation to society’s needs. The market forces will be
helpful in determining these scarce resources in most rational manner. The equilibrium will be attained
at the equality of demand and supply of environmental quality.

Since resources are scarce they cannot be used to produce all types of goods simultaneously. Therefore,
if they were used to produce one thing, they have to be withdrawn from other uses. The problem of
choice facing a modem society is whether to maintain environmental quality or to increase industrial
production (i.e. automobiles). It creates conflicts of interest between potential gainers and potential
losers.
•The problem of externalities is an important aspect of environmental quality. The external effects of
industrial production may affect the environmental quality. Therefore, the economic problem is the
optimal allocation of resources in the context of externalities.
•One of the objectives of environmental quality is to restrict those production activities which enhance
social costs to society. Environmental quality is largely influenced by human activities in terms of excess
exploitation of resources and the production of waste. How much environmental quality is affected by
exploitation of resources and production of waste depends on ecological conditions of the economy.
More exploitation of it means more pollution.
• Environmental pollution as an economic problem.
• Economic growth can affect environmental quality under different situations. Environmental quality
can increase with economic growth. Thus increased incomes, for example, provide the resources for
public services.
•With availability of these services individuals can devote more resources for conservation. Second,
environmental quality can initially worsen but then improve as the growth rate rises. Third,
environmental quality can decrease when the rate of growth increases.

Scope of Environmental Economics

•Environmental economics is considered both a positive and a normative science. Therefore, it has wide
scope.

Economy-environment analysis:
•Environmental economics is primarily concerned with the impact of economic activities on
environment and its implications for the individual firm, industry and the economy as a whole.
Economists have formulated economy-environment models to explain the various economic activities
and their external effects. For example, the Material Balance Model and the Leontief Abatement Model
explain these externalities.

Eco-development:
•The main objective of environmental economics is to maintain a balance between economic
development and environmental quality. In order to achieve it, environmental economists have to
explore the various socio-economic possibilities to reduce pollution and uplift the standard of living of
the people. This objective gained momentum after the publication of the Report on Limits to Growth.

Welfare approach:
•Environmental economics has emerged as a discipline to tackle environmental problems from an
economic welfare framework. The welfare framework covers scarce resources and market failures due
to property rights and ethical aspects of different problems of pollution. Thus it suggests the best
possible means to tackle the environmental problems.

Clean Technology:
•Presently environmental pollution is caused by misuse of existing technology and failure to develop
better one. Environmental economists are in favour of appropriate and clean technologies which
provide the most rational use of natural resources and energy and to protect the environment.

International Cooperation:
•There are many international issues like hazards of trans-boundary shipments, unwanted substances
and common property resources which need international cooperation among nations. There are many
negative effects of inadequate toxic wastes generated within countries and hazardous goods exported
to other countries.
•Most countries of the world are insisting on uniform standards and environmental regulations for all
nations. Other issues are related to international common property resources, especially the share of
river water and forest lands, etc.

Conservation Policy:
•The longstanding foundation of environmental economics lies in conservation economics which tends
to emphasise the impact of economic activities on demand for productive resources and energy
resources. It suggests the optimal strategy in the utilization of natural resources in a rational manner.

Multi-disciplinary base:
•Environmental economics is inherently a multi-disciplinary subject. It consists of an integration of many
varied disciplines such as biology, ecology, physical sciences, ethics and main stream economics.
Therefore, it has wide scope.

CLIMATE CHANGE AND ECONOMIC DEVELOPMENT

How is climate change affecting the economy and society?

•Not only is it a serious threat to the planet and to people, climate change is also threatening the global
economy. This problem needs public-private sector collaboration to change the way we produce goods
to other methods that guarantee and drive the development of sustainable economic growth.

•As well as its serious impact on the environment and people, climate change is one of the biggest
threats to economic stability. Heatwaves make us less able to work and reduce productivity. Hurricanes,
cyclones and typhoons devastate millions of people, leaving them in absolute poverty after ruthlessly
sweeping away their communities. Droughts shrink harvests, further complicating the arduous task of
feeding the world population, which is expected to reach 10 billion by 2050 (World Population Prospects
2019, United Nations Organisation). The World Bank is warning: if we don't do something immediately,
climate change could push 100 million more people into poverty by 2030.

THE STERN REPORT AND THE NORDHAUS MODEL

•Considered until not long ago something that didn't affect us, the health of the environment takes
centre stage in the models of today's economists.
•In 2006, the British government was the first to commission an economist to draft a report on the
climate. It chose the World Bank's former chief economist, Nicholas Stern, and the result was a 700-
page document that has become a reference on the subject. Stern confirmed that “greenhouse gas
emissions are the biggest mistake that the world market has ever seen”. In short, the main conclusion of
the Stern Report is that we need to invest the equivalent of 2% of global GDP to mitigate the impact of
climate change.

• Meanwhile, American economist William D. Nordhaus received the Nobel Prize for Economics in 2018
with Paul Romer for integrating climate change into long-term macroeconomic analysis. Nordhaus was
the first economist to develop a quantitative model that reproduces the interaction between economic
development and climate change on a global scale. According to Nordhaus, the solution to climate
change is to apply prices that will act as a deterrent to using fossil fuels, because the current price is too
low and does not foster the search for alternatives like renewable energies.

IS IT POSSIBLE TO HALT CLIMATE CHANGE AND BOOST THE ECONOMY?

•Despite the initial reticence of the business community, an increasing number of studies and activities
show that measures aimed at dealing with global climate change are a golden opportunity for ensuring
sustainable development and driving economic growth. As explained by the World Commission on the
Economy and Climate in a report at the end of 2018, adopting ambitious climate measures may
generate profits of USD$26 billion by 2030, creating 65 million new jobs with low carbon emissions.
 According to that report, to build a more resilient, beneficial growth model for people we must
accelerate structural transformation in five key economic sectors:

1. Clean energy systems

•Decarbonisation of the energy system coupled with decentralised, digitised electrification technologies
could give a billion more people access to modern energy services.

2. Smarter urban developments

•More compact, connected and coordinated cities would save US$ 17 billion by 2050 and stimulate
economic growth by improving access to work and housing.

3. Sustainable land use

•A switch to more sustainable farming methods combined with strict forestry protection could generate
economic benefits of around 2 billion dollars per year.

4. Smart water management

•In areas with a water shortage, GNP could fall by up to 6% in 2050. This could be prevented by making
more efficient use of water through technological improvements and investment in public
infrastructure.

• At the same time, the Global Commission on the Economy and Climate is urging public and private
sector leaders to take these urgent measures in the next two or three years: put a price on carbon and
force companies to disclose climate-related financial risks, speed up investment in sustainable
infrastructure, harness the power of the private sector, boosting innovation and increasing the
transparency of the value chain, and adopt a people-centric focus to ensure equitable growth and a fair
transition.
•The United Nations Organisation (UNO) says says that it is not too late to turn around climate change
and minimise its terrible effects. The truth is that humankind has the organisational and technological
capacity to counteract and solve all the problems and damage we have done to the planet, and  repair
the harm caused to nature.