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Author: Nemat Shafik Published by Oxford University Press 1994

An econometric analysis

Economic Development and Environmental Quality

Introduction Economic Development and Enviromental Quality .

.Relationship: Economic Growth & Environmental Quality Lack of substantial empirical evidence on how enviromental quality changes at different income levels. It is constrained by the absence of data for a large number countries. technology and economic structure). The relationship between income and the cost and benefits associated with any given level of environmental quality is complex (preferences.

There is a view that rising incomes imply that the cost of environmental degradation is greater because the wages used to value the opportunity cost of illness or work days lost are higher. Some income levels are often associated with increases in certain polluting activities – such as the development of heavy industry. .Income levels & environmental degradation The types of environmental degradation that occur depend in the composition of output which changes with income. This would imply increases in marginal benefits as incomes rise.

economic growth tends to result in a steady environmental quality . • Where environmental quality directly affects human welfare. higher incomes tend to be associated with less degradation.• At theoritical level. it is not possible to predict how environmental quality will evolve with changes in per capita incomes. • But where the cost of environmental damage can be externalized.

Specification of an empirical model .

four determinants of environmental quality Endowment such as climate and location Per capita income which reflects the structure of production. urbanization and consumption patterns of private goods Exogenous factors such as technology that ’s changes over time Policies that reflect social decisions about the provisions of environmental public goods depending on the the sum of invidual benefits relative to the sum of individuals willingness to pay .

Log-linear Quadratic Cubic . The environmental quality indicator analyzed are the lack of clean water. DO in rivers.The Empirical Model Indicators of environmental quality were used as dependent variables in panel regression based on OLS estimates using data from up to 149 countries for the period 1960-1990. change in forest area between 1961-1986. fecal coliforms in rivers. ambient levels of suspended particulate matters. lack of urban sanitation. the annual rate of deforestation between 1962-1986. municipal waste per capita and carbon emission per capita. ambient SO2.

Econometric Results .

Regression Result .

Regression Result .

Pattern of environmental change and per capita income (1) .

Pattern of environmental change and per capita income (2) .

Pattern of environmental change and per capita income (3) .

• Technological innovations alter the cost-benefit calculus at any point in time. municipal solid wastes. . The level of technology. as proxied by the time trend. and carbon emissions).Conclusion • Some environmental indicators improve with rising incomes (like water and sanitation). controlling for the level of income. The turning points at which the relationship with income changes varies substantially across environmental indicators. others worsen and then improve (particulates and sulfur oxides) and others worsen steadily (dissolved oxygen in rivers. • The functional forms seem to reflect the relative costs and benefits that individuals and countries attach to addressing certain environmental problems at different stages of economic development. tends to have a positive impact on environmental quality.

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