Chapter Two

Some Issues on the

Environment and Development
 Growth versus Development
 Economic growth may be one aspect of economic
development but is not the same

 Economic growth:

✓ A measure of the value of output of goods & services

within a time period(GDP)

 Economic Development:

✓ A measure of the welfare of humans in a society

 Growth versus Development….
 Using measures of economic growth can give distorted
pictures of the level of development 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.

 Economics development measured using measures of

welfare (human development index – health status ,
education , per capita income and level of political freedom)
 Sustainable Development
• “development that meets the needs of the present without
compromising the ability of future generations to meet their
own needs.” WCED (1987) report Our common future
• Sustainable development is about equity issue across & with in
generation “ intergenerational equity”
• The utility society or representative individual is non-declining
ut
over time 0
t
• Sustainable development can be defined in terms of observable
determinant of utility or wellbeing
- level of consumption determined by the productive capacity of
the economy which can be estimated by capital stock
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 Sustainable Development
▪ Form this view point economist define SD in terms of capital.
▪ Total capital ( natural + man made + human + social capital)
✓ natural capital : natural resources (biodiversity, minerals,
clean air , water , Soil , ecosystem etc.
✓ man made capital: producible such as infrastructure ,
machineries factories etc.
✓ human capital: skill and knowledge which can be
increased by training and education
✓ social capital: features of social organizations like norms,
networks interaction b/n individuals & institution etc.
▪ SD - Maintenance of the productivity of natural, produced, and
human assets from generation to generation. 5
 Weak vs strong Sustainability definition
 Weak sustainability:
➢ total capital stock should be non-declining through time.
➢ Assumes unlimited or perfect substitute between natural
and human capital.
➢ Genuine saving and green net national product are used as
economic indicator for weak sustainable development
✓ Genuine saving = environmentally adjusted net domestic saving
➢ draw back of WSD : substitution between different capital is not
perfect. In most case they are complementary than become
substitute e.g. Machine & labor
➢ Thus non declining genuine saving can not guarantee non declining
welfare
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 Strong sustainability
 Strong sustainability: Demands non-declining stock of natural capital
stock over generations to maintain constant level of utility or welfare.

✓ reduction in natural capital can not be substituted by Increase

in human & man made capital. Thus SSD requires protection

of absolute level of environmental goods.

✓ Future generation reach the same level of welfare as present

generation if we maintain natural capital at the level that enable to
attain welfare level of present generation.

➢ Natural capital stock cannot fully aggregated, we have to disaggregate

in to renewable , nonrenewable, biodiversity and pollution assimilative
capacity of the environment
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 Strong sustainability
 Daly’s operational principle for strong sustainability
✓ Renewable resources harvest should be set at less or
equal to the population growth rate.
✓ Pollution- establish the assimilative capacity for degradable
pollutant and set zero discharge for cumulative pollutant.
✓ Non-renewable resources :invest in renewable substitute to
reduce the extraction level of nonrenewable.
✓ Biodiversity : maintaining resilient ecosystem(biodiversity)
Resilience : property of a given ecosystem to retain its functional &
organizational structure following disturbance.

Maintaining system resilience is important to get the

environmental service over time
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 Strong sustainability indicators
 Ecological footprint – the area of land and water needed to by
participant in the economy to produce all the resource they consume
and absorb all the waste generated under the existing technology.

 Ecological Footprint (EF) compares human consumption of natural

resources with Earth’s ecological capacity to regenerate them. Estimate
for demand for water

 The size vary depending technology as well as with level of

consumption and production

 SD keeps at least the same level of ecological footprint

 Thus SD is development which preserves environmental resources

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Sustainable development
 SD balances social, economic
& environmental needs, both
for present & future
generations
• achieving a vibrant
economy, social
progress and better
environmental
quality.

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Economic growth and Environmental Quality –
environmental Kuznets curve (EKC)

• EKC- A hypothesised relationship between various indicators of

environmental degradation and income per capita.

• “In the early stage of economic growth pollution increases, but

beyond some level of income per capita the trend reverses, so at
high income levels economic growth leads to environmental
quality improvement.”

• Thus EKC is represented using inverted U shaped Curve

• implication : Economic growth leds to environmental quality

improvement
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EKC….
EKC….
EKC….
EKC….
16
 Descriptions of EKC
➢ Environmental good is a normal good
➢ Peoples are more interested in job and income growth than in
environmental quality in early stage of growth
➢ Peoples are too poor for paying for abatement in early stage of
development
➢ Economic growth and development accelerate with
intensification of agriculture and other resource extraction
➢ There is structural change of economic activity toward
information intensive industrial and services sector
➢ Increase awareness , enforcement of environmental regulation,
using better technology and higher expenditure on
environment as income of the society grow
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 Environmental Kuznets curve cont….
 EKC represent what we call scale- composition- technical effect
of income growth:
✓ scale effect: more input is used to produce more output
at early stage of growth which is accompanied with increase
in environmental degradation.
✓ Composition effect: as income grow the structure of
production to more cleaner activities.
✓ Technical effect : wealthier nation can spend on R&D
which result in technical progress. As a result dirty and
obsolete technologies are replaced by cleaner technology
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 Environmental Kuznets curve cont….
 International trade: trade as scale – composition – technical effect
- trade increase the size of an economy and then pollution

- trade promote technological transfer through FDI

 Displacement hypothesis

- trade led to displacement of dirty industry to less developing countries

since developed countries have strong environmental regulation

- the poor is net exporter of goods produced with dirty technology&

rich countries are exporters of product produced with clean & service
intensive products
 Trade on the other hand increase income and increase demand for tighter
environmental regulation & enhance diffusion of clean technology-
improve environmental quality.
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 Empirical evidence of EKC hypothesis

 EKC holds for some environmental qualities and not for others
- lack of clean water and urban sanitation decline as income
increases
- local air pollutant concentration follows EKC hypothesis
- forest cover decline over time as income grow
 EKC apply only to selected sets of pollutants only.
 Arrow et.al (1995) concluded that economic growth is not a
panacea for environmental degradation. So policies that
promotes economic growth can’t be a substitute for
environmental policy
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Human Action and Environment
Human Action and Environment
Human Action and Environment….
Human Action and Environment….