The Environmental Regime in Developing Countries

Volume Title: Behavioral and Distributional Effects of Environmental PolicyVolume Author/Editor: Carlo Carraro and Gilbert E. Metcalf, editorsVolume Publisher: University of Chicago PressVolume ISBN: 0-226-09481-2

Volume URL: http://www.nber.org/books/carr01-1Conference Date: June 11–12, 1999Publication Date: January 2001

Chapter Title: The Environmental Regime in Developing CountriesChapter Author: Raghbendra Jha, John WhalleyChapter URL: http://www.nber.org/chapters/c10610Chapter pages in book: (p. 217 - 250)

ⅷ7TheEnvironmentalRegimeinDevelopingCountriesRaghbendraJhaandJohnWhalley7.1IntroductionThispaperexplorestheenvironmentalregimeindevelopingcountries.Byregime,wemeanthoseenvironmentalexternalitiesthatarecommonlyfoundinthedevelopingworld,alongwiththepolicyresponses,ifany,tothem.Includedarethedirecteffectsofindustrialemissions,air-andwater-qualityimpactsofuntreatedwaste(industrialandhuman),congestionef-fectsoftraffic,soilerosion,andopen-accessresourceproblems(includ-ingforests).Wenotethemanydifficultiesinvolvedwithadequatelycharacterizingthisregime,nottheleastofwhichistheheterogeneityacrossbothenviron-mentalproblemsandpolicyresponsesinthedevelopingworld.Enforce-mentandcompliance(whicharetypicallylaxindevelopingcountries)alsoplayacentralroleindefiningthisregime.Inaddition,wenotethediffer-encesbetweentheexperiencesofdevelopedanddevelopingcountriesmoregenerallybeyondtheenvironmentalarea.Inthepaperwemakethreemainpoints.Thefirstisthatthereisatendencyinmuchoftheliteratureofthelastfewyearstoequateenviron-mentalproblemsindevelopingcountrieswithpollutants(oremissions).RaghbendraJhaisprofessoratIndiraGandhiInstituteofDevelopmentResearch,Bom-bay.JohnWhalleyisprofessorattheUniversityofWesternOntarioandtheUniversityofWarwick,andaresearchassociateoftheNationalBureauofEconomicResearch.TheauthorsaregratefultoMayArunanondchaiforresearchsupportandtotheirdiscus-santEdBarbier,GibMetcalf,CarloCararro,PeterNewell,AjitRanade,ManojPanda,Di-anaTussie,andBenZissimosforcommentsanddiscussions.ThispaperdrawsonmaterialfromaprojectonapossibleWorldEnvironmentalOrganizationandtheinterestsofthedevelopingcountriessupportedbytheMacArthurFoundation,inwhichthetwoauthorsarejointlyinvolved.217218RaghbendraJhaandJohnWhalleySuchanapproachhasbeenpartlyinfluencedbydataavailability,includingthatcollectedbytheGlobalEnvironmentalMonitoringSystem(GEMS)supportedbytheUnitedNationsEnvironmentalProgram(UNEP).Thishasyieldeddataonarangeofenvironmentalindicatorsincludingbiologi-caloxygendemand(BOD),airborneSO2concentrations,heavymetallevels,1untreatedhumanwaste,andotherair-andwater-qualityindica-tors.Thisfocusonpollutantshasmeantthatinmuchoftheliteraturethereislessemphasisonwhatothershavecalleddegradation.Thisreferstotheeffectsofuninternalizedexternalitiesseeninsoilerosion,conges-tion,open-accessresources,andotherproblems,wherephysicalemissionsarelessofaproblem.Thepaperarguesthatdiscussingenvironmentalproblemsindevelopingcountries(orcomparingthemwiththoseindevel-opedcountries)withoutreferencetotheseproblemsisincomplete;theireffectsarelargeandpervasive,andtheirseverityandinteractionwitheco-nomicprogressoftendiffersharplyfromtheeffectsofpollutants.Thesecondpointisinmanywaysanelaborationofthefirst.Wehavereviewedstudiesofthesocialcostsassociatedwithincompleteinternaliza-tionoftheexternalitieswelist.Thestudiesthatareavailablearelimitedintheircoverageofbothcountriesanditemsand,inaddition,donotalwaysuseconsistentmethodologies;butthepicturetheypaintisthatsuchcostsseemlarge(perhapsinexcessof10percentofGDPonanannualbasisinsomecountries),andthatthesecostsaredominatedbydegradationratherthanbypollutanteffects(accountingforperhapsthree-quartersofthetotaleffect).Oneimplicationwedrawisthatwithlargecostestimatesofinaction,environmentalpolicyindevelopingcountriesshouldperhapshaveahigherrankingthanithascurrently,especiallyifthesecostestimatessubstantiallyexceedthoseofinactionwithregardtomoreconventionalpolicyreformsuchastaxortradepolicy.Theotheristhatifthebalanceofcostsisskewedmoretodegradationthantotheeffectsofpollutants,degradationshouldperhapsreceivemoreattentionintheliterature.Ourthirdpointconcernstherelationshipamonggrowth,policyreform,andenvironmentalquality;andcomparisonsoftheenvironmentalsitua-tioneitheracrosseconomiesorovertimeinlightofourcharacterizationoftheenvironmentalregimeindevelopingcountries.Totheextentthatrecentliteraturefocusesondifferencesinoutcomesacrosscountriesorovertimeintermsoflevelsofvariousenvironmentalindicators,theissueiswhetherdegradationeffectscangiveadifferentpicture.Wearguethatdegradationeffectscouldwellbehavedifferentlyfrompollutantseffects;soilerosionproblems,forinstance,seemtoprogressivelyrecedeasincomepercapitarises,sincethepopulationinagriculturefallsandplotsizesrise;whileoutward-orientedtradepoliciesdrawlaborintourbanareasfrom1.Lead,arsenic,mercury,andcadmium.TheEnvironmentalRegimeinDevelopingCountries219ruralareas,addingtocongestion.Wediscusstheliteratureontheenviron-mentalKuznetscurve(ShafikandBandopadhyay1992;GrossmanandKrueger1995;AndreoniandLevinson1998)andrecentliteratureontradeandenvironment(CopelandandTaylor1994,1995;Antweiler,Copeland,andTaylor1998).Whiletheauthorscontributingtotheseliteraturesareclearinlabelingtheiranalysesasprimarilyofpollutantlevels,usersofthisresearchnaturallytendtothinkoftheresultsasgivingguidanceonthewiderenvironmentalsituationinthecountriesdiscussed;andwithoutex-plicitreferencetodegradationeffects,thepictureonceagaincanbeincom-plete.Inthefinalsection,thepaperarguesthatthewelfaregainsfrommovingtofullinternalizationwouldseemtobethemoreappropriatecomparativemeasureoftheseverityofenvironmentalproblemsacrosscountries(orchangesovertime).Thestudiesreferredtoseemtosuggestthatinternal-izationgainsrelativetoGDParesignificantfordevelopingcountries(andprobablylargerthanfordevelopedcountries),raisingtheissueofwhyahigherdegreeofinternalizationhasnotoccurred.Wediscussbrieflywhetherthisoutcomereflectsincomeelasticitiesofdemandforenviron-mentalqualityabove1;orwhetheritreflectstechnologyandcapitalinten-sityofenvironmentalmanagementandpolicyenforcement,sothatabate-mentcostsindevelopingcountriesarethebarrier.Wealsotouchontheroleofthepoliticalstructureinthesecountries,andonwhetherakeyproblemisalsoindefiningandenforcingpropertyrights.IntheprocesswediscussthelinksbetweenpovertyanddegradationtakenupbyMaler(1998).Inconcluding,thepaperdiscussestheimplicationsofourcharacteriza-tionoftheenvironmentalregimeindevelopingcountriesforenvironmen-talpolicyinthesecountries.Canthepolicyregimesindevelopedcountriesbesimplytransferred,oraretherespecialfeaturesthatneedtobetakenintoaccount?Degradation,propertyrights,andcomplianceissuesseemtobemoreprominentfordevelopingthanfordevelopedcountries.7.2TheEnvironmentalRegimeinDevelopingCountriesWeinterprettheterm“environmentalregime”asappliedtothedevel-opingcountriestomeanthesetofexternality-relatedproblemsoftenchar-acterizedasenvironmental,aswellasthepolicyresponsetheyinduce.Individually,thesecoversoilerosion,open-accessresources(forestsandfisheries),congestion(traffic),householdemissions(fuelburning),indus-trialemissions,ground-andsurface-waterresources(sharedaquifersandwater-tableproblems),untreatedhumanandnonhumanwaste,andotherproblems.Propertyrightsandtheirlackofcleardefinition,andcom-pliancewithenvironmentalcontrolsaretwofactorscloselyconnectedwiththeseproblems.Policyresponsesincluderegulation(commandandcontrol),localactions(villagelevelconcerningsoilerosion),resource-220RaghbendraJhaandJohnWhalleymanagementpolicies(forests),andinfrastructuredevelopment(urbancongestion).Forthepurposeofourlaterdiscussion,weclassifytheseexternalitiesintotwobroadheadings:pollutants,coveringindustrialandhouseholdemissionsofvariousformsanduntreatedwaste;anddegradation,coveringsoilerosion,congestion,andopen-accessresources.Forbothoftheseproblemareas,weidentifytheclassicalexternalityliteraturethatapplies:APigouviantaxwillinternalizetheexternality,andtheCoasianissuesoftheassignmentofpropertyrightsandwhetherpartialinternalizationcantakeplacethroughbi-(ormulti-)lateraldealsoncepropertyrightsarees-tablishedalsoarise.Wecouldgrouptheseexternalitiesinotherways,suchasagricultureandruralexternalityproblems,urbanexternalityproblems,andenvironmentalproblemsassociatedwithvaryingformsofindustrialwaste.Thereasonsforgroupingtheseenvironmentalproblemsinthewaywedohererelateprimarilytomeasurementissues.Theydonotreflectanymajoranalyticaldistinctionintermsoftheeconomics,eventhough,forinstance,open-accessexternalityproblemsforrenewableresourceshaveacomplexana-lyticalliteraturecharacterizingbothhowreplacementofthestockoccursandwhatconstitutesoptimalpolicyacrosssustainableharvests.Pollutantscaptureemissionsandcontaminantsofvariousforms,whichcanbemoni-toredbysucheffortsasGEMS.Degradationcapturesenvironmentalef-fectsforwhichemissionsandcontaminantsarenotthecentralissue,andforwhichdirectmonitoringismoreproblematic.Wenoteinpassingthatthedevelopingcountriesinwhichtheseregimesoccurarefarfromahomogenousgroupofcountries.Theyvarybypercapitaincome,GDPgrowthrates,size,thevolumeandpatternoftheirinternationaltrade,theirdegreesofurbanization,andmanyothercharac-teristics.Theyalsovaryintheformtheirenvironmentalproblemstake;somecountriesareheavilyendowedwithenvironmentalassetssuchastropicalforests,2whileothersarearidanddesert;somearemountainous,whileothersarelowlyingandfloodprone.Generalizingacrossalldevel-opingcountriesandcategorizingtheenvironmentalregimestheyeachfaceisthusdifficult.Afewgeneralizationsseemtohold,however;forinstance,lower-incomecountrieshaveproportionatelymoresignificantagriculturalandruralsectors.7.2.1ElementsoftheRegimeNotwithstandingtheseproblems,intable7.1wehavesetoutwhatweseeasthemainelementsinourcharacterizationoftheenvironmentalre-2.Schatan(1998),forinstance,notesthatLatinAmericaandtheCaribbeanaccountfor50percentoftheworld’stropicalforests,andfiveofthetencountriesrichestinbiodiversityworldwideareintheregion(Brazil,Colombia,Ecuador,Mexico,andPeru).TheEnvironmentalRegimeinDevelopingCountriesTable7.1PollutantsToxiccontaminantsAPollutantandDegradationClassificationSchemeforEnvironmentalExternalitiesinDevelopingCountries221UntreatedfluidwasteDomesticsolidwasteSmokeandburningDegradationSoilerosionSoilqualityOpen-accessresourcesCongestionandtrafficOrganochlorines,dioxins,pesticides,greaseandoil,acid,andcausticmetals(mainlydischargesfrommines,chemicalproducers,pulpandpaperplants,andleatherandtanningfactories),whichcausehealthandotherproblemsUntreatedsewagedischargesintorivers,streams,openditches,whichcauseswaterbornediseasePoorlymanagedsolidwaste,whichspreadsinfectiousdiseaseandblocksurbandrainagechannels,withriskoffloodingandwaterbornediseaseBurningdung,wood,coal,andcropresidues;vehicleexhaust;andsmoke,whichcauserespiratorydamage,heartandlungdisease,andcancerSedimentarytransferoftopsoiltoneighboringplots,riverestuaries,hydrodams,whichcausessilting,accompaniedbyleachingofsoilPesticideresidues,whichaffectproductionofneighboringplotsIll-definedpropertyrights,whichleadtooverexploitationofresources(firewood/forests,fisheries;andsharedaquifersandwatertables)Poorlyregulatedtraffic,whichcausestimeloss,elevatedaccidentrisk,andloweredairqualityinurbanareasgimeindevelopingcountries,usingthebroadcategoriesofpollutantsanddegradationalreadydiscussed.Pollutantsintheformoftoxiccontaminantscovereffluentsofvarioustypes,whichcomelargelyfrommines,chemicalproduction,pulpandpa-perplants,andleatherandtanningfactories.Theyincludeorganicchlo-rines,dioxins,pesticides,greaseandoil,acid,andcausticmetals.Thesegeneratehealthandotherproblems.TheU.N.HumanDevelopmentReport(HDR)(U.N.1998)estimatesthatAsia’srivers,onaverage,containleadlevels20timesinexcessofthoseinEuropeanandNorthAmericancoun-tries,andclaims,bywayofexample,thatinChinamosttoxicsolidwasteisdisposedofinmunicipalwastestreamswithouttreatment.Asecondcategoryofpollutant-basedexternalityproblemsconsistsofthoseassociatedwithwaterqualityanduntreatedfluidwaste.Itiscom-moninmanycountriesfortheretobeuntreatedsewagedischargesintorivers,streams,andopenditches.The1998HDRsuggeststhatasmuchas50percentofalldischargesintowaterwaysindevelopingcountriesareuntreated.These,inturn,generatesignificanthealthproblems,includingwaterbornediseases,whichinsomecountriesarerife.TheHDRestimatesthatdiarrheaanddysenteryaccountforanestimated20percentofthetotalburdenofdiseaseindevelopingcountries;thatpollutedwatergener-atesnearly2billioncasesofdiarrheaannuallyinthedevelopingworld;andthatdiarrhea-relateddiseasescausethedeathsofsome5millionpeopleannually,including3millionchildren.Theyalsoestimatethatcon-taminatedwaterleadsto900millioncasesofintestinalwormsand200222RaghbendraJhaandJohnWhalleymillioncasesofschistosomiasis,andthatAsianriverscarry50timesasmanybacteriafromhumanexcrementasriversinEuropeanandNorthAmericancountries.3Thehighlevelofarseniclinkedtophosphoricfertil-izersingroundwater,whichkillsomeofthepeoplewhodrinksuchwater,isafurtherprobleminanumberofcountries.Anothercomponentofthepollutantcategoryisdomesticsolidwaste.Inmostdevelopingcountries,thereareonlylimitedsolid-wastedisposalsystemsandtheresultisthespreadofinfectiousdiseases.The1998HDRestimatesthatbetween20and50percentofdomesticsolidwasteinthesecountriesremainsuncollected,evenwithuptoone-halfoflocalgovern-mentspendinginsomecountriesgoingtowastecollection.Insomeareas,giventhelackofsanitation,wastebecomesmixedwithexcrement,furthercontributingtothespreadofinfectiousdisease.UncollecteddomesticwasteisthemostcommoncauseofblockedurbandrainagechannelsinAsiancities,whichinturnincreasestheriskoffloodingandwaterbornedisease.Poorerhouseholdsinthesecountriestendtolivenearwaste-disposalsites.Health-relatedproblems(whichincluderespiratorydamage,heartandlungdisease,andcancer)duetosmokefromburningandtovehicleex-haustinbothurbanandruralareasreflectanotherpollutant-basedele-mentoftheenvironmentalregime.Inlower-incomecountries,theseprob-lemscomefromburningdung,wood,andcropresidues.The1998HDRestimatesthat90percentofdeathsgloballyduetoairpollutionareinthedevelopingworldandofthose80percentareduetoindoorpollution.Oftheelementsofdegradationthatweidentifyaspartoftheenviron-mentalregimeindevelopingcountries,soilerosionisamajorcomponent;althoughtoidentifytheexternality-relatedcomponentonehastodiffer-entiatebetweenon-siteandoff-siteeffects.Erosionarisesfromavarietyofcauses.Oneispopulationgrowththatresultsinprogressivedivisionofplotsizes,withspilloveroftopsoilintoneighboringplots,riverestuaries,hydrodams,and,inthecaseofcountrieswithmoredesertareas,wind-bornesoilloss.The1998HDRestimatesthatinBurkinaFasoandMali,onepersoninsixhasbeenforcedtoleavehisorherlandbecauseithasturnedintodesertandthatdesertificationhasaworldwideannualcostof$42billioninlostincome,$9billionofwhicharisesinAfrica.Soilerosionreducesagriculturalproductivityandinsomecasestheavailabilityofag-riculturallandspercapita.Soilerosionhasalsohadtheeffectofreducingfodderavailableforcattle.Arecentsurveypaperonstudiesofthecostofsoilerosionindevelopingcountries(Barbier1998)placestheannuallossesbycountryinarangefrom1to15percentofGDP.Alfsenetal.(1996),inastudyofNicaragua,3.ThisisconsistentwithHettige,Mani,andWheeler’s(1997)findingthattheenvironmen-talKuznetscurvedoesnotholdforwaterbornepollutants.TheEnvironmentalRegimeinDevelopingCountries223estimateannualproductivitylossesduetosoilerosionbycrop—ofcoffee1.26percent,beans2.52percent,maize2.41percent,andsorghum1.35percent.MagrathandArens(1989),inastudyofsoil-erosionlossesinJavain1985,estimateannuallossesofapproximately4percentofthevalueofcropsharvested.Cruz,Francisco,andConway(1988),4examiningtwowatershedsinthePhilippinesandfocusingonlyonadditionalsedi-mentarycostsforhydro-powerinstallations(reducedwater-storagecapac-ityforhydropower,reductionsintheservicelifeofthedam,andreducedhydropower),estimateannualcostsof$27perhectareofagriculturallandinthewatershed,asignificantportionofthevalueofcropyield.Soil-qualityproblemsarisefromtheleachingofpesticidestoneighboringplots,contaminatingneighbors’soil.Inadditiontosoilerosionandsoilquality,otherdegradation-typeexter-nalitiesarisewithopen-accessresources(resourcesforwhichthepropertyrightsareill-definedorpoorlyenforced)andtheoverexploitationoftheseresources.Theseincludedeforestationassociatedwithlandclearing,slash-and-burncultivation,squatting,and,insomecountries,thecollectionoffirewood.TheseproblemsareespeciallysevereinAfricaandinCentralandLatinAmerica;Schatan(1998),forinstance,identifieslanddegrada-tionasthemostseriousenvironmentalproblemfacingLatinandCentral´pez(1997)estimatedAmerica.ForGhana,oneofthelessseverecases,Lothatovercultivationoflandattheexpenseofforestsrunsto25percentoflanduse.Overexploitationoffisheriesisafurthermajorproblem.Sharedaccesstowaterthroughcommonaquifersandgroundwaterisyetafurthermanifestationoftheproblem;thisresultsinreducedwatertables,causingespeciallysevereproblemsinthenorthChinaplain.Finally,inthisregimeundertheheadingofdegradationareurbancon-gestionproblems.Rapidgrowthinurbanpopulationandvehicledensities,especiallyinhigh-growtheconomies,leadstocongestion.Thislowersairquality;increasesthespreadofinfectiousdisease;andgeneratessignifi-canttimelossfromtraffic,highaccidentrates,andnoise.A1990studybyJapan’sInternationalCooperationAgency5producedtheestimatethatroadcongestioninThailand(oneoftheworstcases)reducespotentialoutputintheBangkokregionbyone-third.Inclosingthisdiscussion,wealsonotethattheenvironmentalregimeindevelopingcountriesischaracterizedbypolicymeasuresthatfrequentlyexhibitlaxenforcement.Asinthedevelopedworld,theprimaryformthatenvironmentalpolicytowardindustrialemissionstakesindevelopingcountriesistheuseofcommandandcontrolinstrumentsofvariousforms.Theseinvolvethesettingofstandardsandmonitoring(withpenaltiesfor4.CitedinBarbier(1998).5.CitedinTheEconomist,5September1998,althoughweshouldnotethattheestimateissubstantiallyinexcessofthoseinotherstudieswementionlater.224RaghbendraJhaandJohnWhalleyviolators),butacommonfeatureisthepresenceofonlylimitedcompli-anceduetoweakenforcement.Forhouseholdwastewater,soilerosion,andothernonindustrialenvironmentalproblems,thereislittleornoabatementofdamageinmanycountries.7.2.2TheCostsofEnvironmentalDamageinDevelopingCountriesIfthisistheregime,whatareitsconsequences?Intable7.2wereportsomeestimatesofthecostsofenvironmentaldamageforsixcountries,eachassociatedwiththeelementsoftheregimeweidentify.Costestimatesofthisformarerelativelyfewandarescatteredthroughouttheliterature.Themethodsanddatausedtoconstructthemarenotalwaysfullyavail-able,andtherearevariancesintheirfindings.Mostoftheseestimatesdonotdirectlyrefertothewelfarecostsoftheenvironmentaldamage,butinsteadusesomeothermeasure(suchasthevalueofworktimelostduetohealthimpacts).WerelyheavilyonasynthesisofstudiesofenvironmentaldamageforasampleofAsianeconomiesthathasrecentlybeendrawntogetherbytheAsianDevelopmentBank(ADB)andreportedinthe1998HDR.These,togetherwithresultsofarelatedstudybytheWorldRe-sourcesInstitute(WRI),arepresentedintable7.2.InthecaseofChina,theADBstudiessuggestthatannualproductivitylossesduetosoilerosion,deforestation,andlanddegradationcouldbeashighas7percentofGDPfortheearly1990s.Ifthehealthandproductivitylossesfrompollutionincitiesareadded(intheregionof1.7–2.5percentofGDP),combinedannualcostestimatesfromenvironmentaldamageareintheregionof10percentofGDP.Eventhisestimateexcludesanumberofkeycomponentsofenvironmentaldamage,suchasthoseduetoconges-Table7.2ChinaSomeEstimatesofEnvironmentalCostsinSelectedAsianCountriesProductivitylossesduetosoilerosion,deforestationandlanddegradation,watershortages,anddestructionofwetlandsin1990of$13.9–26.6billionannuallyor3.8–7.3percentofGDP;healthandproductivitylossesfrompollutionincitiesin1990of$6.3–9.3billionor1.7–2.5percentofGDPTotalenvironmentalcostsof$13.8billionin1992or6percentofGDP;urbanairpollutioncostsof$1.3billion;healthcostsfromwaterqualityof$5.7billion;soilerosioncostsof$2.4billion;deforestationcostsof$214million(traffic-relatedcosts,pollutioncostsfromtoxicwastes,andbiodiversitylossesexcluded)HealthcostsofparticulateandleadlevelsaboveWHOstandardsinJakartaof$2.2billionin1989or2.0percentofGDPHealthimpactsofairandwaterpollutionandproductivitylossesfromdeforesta-tionandsoilerosionof$1.7billionintheearly1990sor3.3percentofGDPHealthandproductivitylossesfromairandwaterpollutionintheManilaareaof$0.3–0.4billionintheearly1990sor0.8–1.0percentofGDPHealtheffectsofparticulateandleadlevelsinexcessofWHOstandardsof$1.6billionor2percentofGDPIndiaIndonesiaPakistanPhilippinesThailandSource:Agarwal(1996);ADB(1997);U.N.(1998).TheEnvironmentalRegimeinDevelopingCountries225tionfromtraffic-relatedproblems.AfurtherstudyofChinabySmil(1992)basedon1988dataputslossesduetoenvironmentaldegradation(farm-landloss,nutrientloss,flooding,andtimberloss)ataround10percentofGDP,comparedtolossesfrompollutants(waterbornepollutantsthatre-ducecropyields,fishcatches,industrialoutput;airbornepollutionthatresultsinhighermorbidity,reducedplantgrowth,damagetomaterials;andsoilpollutionthatreducescropyields)ofperhaps2percentofGDP.EstimatesofthecostofdamagefromaseriesofenvironmentalsourcesinIndiain1992areapproximately6percentofGDPintheADBstudies.Theelementsincludedurbanairpollution,healthcostsfromwaterquality,soilerosion,anddeforestation,whilethestudyexcludestraffic-relatedcosts,pollutioncostsfromtoxicwastes,andbiodiversitylosses.Theotherstudiesincludedintable7.2arelesscompleteintheircover-ageofenvironmentaldamage.StudiesforIndonesiaofthehealthcostsofparticulateandleadlevels(gasolinerelated)settheselevelsabovethoselaiddownasstandardsbytheWorldHealthOrganization(WHO),atap-proximately2percentofGDPin1989.InPakistanthehealthimpactsofairandwaterpollutionalongwithproductivitylossesfromdeforestationandsoilerosionareestimatedatapproximately3.5percentofGDPintheearly1990s.TheADBstudiesofthePhilippinesconcentrateontheManilaareaaloneandlookattheeffectsofloweredairandwaterquality;thecostestimateforthiscomponentofdamageisapproximately1percentofGDP.InThailand,thehealtheffectsofparticulatesandleadlevels(gasolinerelated)inexcessofWHOstandardsareputat2percentofGDP.Table7.3reportsestimatedtime-losscostsfromtrafficcongestionforasampleofAsiancities.Thesearealsocitedinthe1998HDRandareinadditiontothosecostslistedintable7.2.ForBangkoktime-relatedcostsfromtrafficareestimatedat2percentoflocalproductin1994;theseesti-matesare0.4percentforSeoulinthesameyear.Health-relatedcostsoftrafficarealreadyincludedinthestudiesreferredtointable7.2.Table7.3EstimatesofTimeLossesduetoTrafficCongestioninAsianCities,1994AnnualCostofTimeDelays(millionsofdollars)272683056851293154Cost(percentageoflocalcitywideproduct)2.11.81.60.90.70.60.4CityBangkokKualaLumpurSingaporeJakartaManilaHongKongSeoulSource:WRI(1996);U.N.(1998).226RaghbendraJhaandJohnWhalleyWhatisstrikingaboutthesetwosetsofstudiesisthat,inthecaseofthetwomorecomprehensivecountrystudies(ChinaandIndia),theestimatesforthecombinedenvironmentaldamagearelarge,intheregionof10per-centofGDPinthecaseofChina,neglectingdamagefromadditionalsourcessuchastimelossintraffic.Giventhatmodel-basedanalysesofthegainsfrommoreconventionalpolicyreform(suchastaxortradereform)inthosecountriesoftenproduceestimatesthatarelower(perhaps1–3percentofGDP),thissuggeststhatenvironmentalpolicyshouldperhapsreceiveahigherweightingintheoverallpolicystanceinthesecountriesthanitdoescurrently.Inaddition,thecompositionofenvironmentaldamagecostsinthesecountriesisstriking.ThestudiesofChinaintheADBcompendiumsug-gestthatperhaps70–80percentofenvironmentaldamageoccursthroughdegradation,largelyinruralareas;arangeechoedinSmil(1992).WhilethenumbersforIndiaareperhapslessdramatic,thehighestimatesofthecostsofsoilerosionoutsideAsia6seemtoustosupportourcontentionthatthedegradationoftheenvironmentratherthandamagecausedbypollutantsmaywellbethemoreimportantenvironmentalissueindevel-opingcountries.7.2.3TransborderEnvironmentalExternalitiesandtheEnvironmentalRegimeinDevelopingCountriesDevelopingcountriesbothcontributetoandareaffectedbyarangeoftransborderandglobalexternalityproblems.Intable7.4welistsomeofthemoremajortransborderandglobalenvironmentalexternalitiesin-volved,boththoseaffectingandthosecontributedtobydevelopingcoun-tries.Thesealsoformpartofthetypicalenvironmentalregimeindevel-opingcountries,and,althoughwedonotemphasizethemhere,wementionthemnonetheless.Globalwarmingisperhapsthemoremajortransborderenvironmentalissueforthedevelopingcountries,withtemperatureriseandmicroclimatechangesastheprojectedoutcome,combinedwithincreasedfrequencyofextremeweatherevents.Thepossibleimpactsondevelopingcountriesarethoughttobepotentiallymoresignificantforlow-terraincountriessuchasBangladesh,asaretheadjustmentproblemsfacedbysmallercountriesasmicroclimateschange(suchasinwesternAfrica)andlaborflowsacrossborders.Furthertransborderelementsformingpartoftheenvironmentalregimeinthesecountriesincludethethinningoftheozonelayer,whichincreasesultraviolet-lightpenetrationoftheatmosphere.Theseeffectsaremorese-vereinthetemperateclimatesofdevelopedcountriesthaninthedevel-opingcountries,buttheabilityofthedevelopingcountriestoabatedam-ageofthistypeismorelimitedthanthatinthedevelopedworld,especially6.SeeBarbier(1998)andSchatan(1998).TheEnvironmentalRegimeinDevelopingCountriesTable7.4GlobalwarmingOzonedepletionBiodiversitylossanddeforestationTransborderandGlobalEnvironmentalExternalitiesAffectingDevelopingCountries227AcidrainTemperatureriseandmicroclimatechange,combinedwithincreasedfre-quencyofextremeweathereventsThinningofozonelayerincreasesultraviolet-lightpenetrationoftheat-mosphere;effectmoresevereintemperateclimatesLossofgenepoolthroughforestandwildlifeerosion(e.g.,mangrovelosseslinkedtoshrimpfarming);lossofforestsaffectslocalpopula-tionswhousenontimberforestproducts,reducescarbonabsorptionbyforests,andincreaseswaterrunoffinfloodingAirborneaciddepositions;highinareassuchassouthandeastChina,northandeastIndia,Korea,andThailand(e.g.,wheatyieldshalvedinareasofIndiaclosetoSO2emissions)becausemuchofthepopulationspendsalargerfractionoftheirtimeout-doors.Wealsoincludeproblemsassociatedwithlossofbiodiversityanddefor-estationasapartofthetransborderandglobalregime.Forlossofbiodi-versity,theissueislossfromthegenepoolthroughfloraandfaunadam-age.Theenvironmentaleffectsofeconomicactivitiesthataffectresourceswithglobalexistencevalue(includingspeciesandbiodiversity)isoneas-pect.Shrimpfarming,forinstance,hasgrowninthelast2decadesfrominitiallylowlevelsinThailandandothercountries,andwithithascomeasignificantlossofmangrovesandaresultinglossofbiodiversity.Manypharmaceuticalproductssoldworldwideeachyeararegeneratedfromforest-relatedsourcesindevelopingcountries.Theglobalimpactsofforestlossoccurthroughmanychannels,includingcarbon-sinkreductionandimpactsonexistencevalueabroad.Butforestlossalsoaffectslocalpopula-tionswhousenontimberforestproductscancauseincreasedwaterrunoffintheeventofflooding.Acid-rainproblemsincludeairborneaciddepositsaffectingbuildingsandagriculturalyields;theseproblemsareespeciallysignificantinsuchareasassouthandeastChina,northandeastIndia,Korea,andThailand.The1998HDRreportsthatinareasinIndiathatareclosetoSO2emis-sionssources(admittedlymostlyoriginatinginIndia)thewheatyieldsareestimatedtohavebeenhalvedduetotheseemissions.Whiletheseglobalandtransborderexternalitiesarealsopartoftheenvironmentalregimeindevelopingcountries,boththeirimpactonindividualcountriesandthecontributionofcountriestoglobaldamagebecauseofthemremainpoorlyquantified.7.3Growth,PolicyReform,andtheEnvironmentalRegimeinDevelopingCountriesThediscussioninsection7.2emphasizedthewiderangeofexternalitiesthatmakeuptheenvironmentalregimeindevelopingcountries,alongwith228RaghbendraJhaandJohnWhalleytheseemingquantitativedominanceofenvironmentalproblemsassociatedwithdegradationoverthoseassociatedwithpollutants.Buthowdoesthisregimechangeascountriesgrow?Doesenvironmentalqualityimproveorworsen,andinwhatdimensionandforwhatreasons?Andwhatpolicymeasurescontributetotheenvironmentalsituation,eitherpositivelyornegatively?7.3.1TheEnvironmentalKuznetsCurveOneofthemoreprominentoftherecentdiscussionsontheseissuesfocusesontheenvironmentalKuznetscurve(EKC).TheEKCreferstotherelationshipbetweenenvironmentalindicatorsofcertaintypesandpercapitaincomesofcountries;itsoriginslieinKuznets’sworkinthe1950sonincomeinequalitymeasuresacrossdevelopingcountries,whichdocu-mentedacleartrendinitiallytowardincreasedinequalityaspercapitaincomegrows,withasubsequentfall.ThisworksuggestedaninvertedUshapeforacross-countryplotofaninequalitymeasuresuchasaGinicoefficientagainstincomepercapita.TheEKChypothesisisthatenviron-mentalindicatorlevelsfirstrise(e.g.,pollutantlevelspercapitarise)aspercapitaincomerises;thentherelationshipreversesaftersomethresholdlevelofincome.TheimplicationdrawnbysomefromEKCplotsisthatgrowthneednotbeinconsistentwiththeobjectiveofimprovingenvironmentalqualityinthemediumtolongerrun:Environmentalconcernscanbedelinkedfromgrowthobjectives.Indeed,someauthorshavegonefurtherandarguedthatthebestwaytoimproveenvironmentalqualityistofollowpoliciesthatmakecountriesrichintheshortestpossibletime,sinceinthelongrunthereisnoconflictbetweengrowthandenvironmentalprotection.Andre-oniandLevinson(1998)andJaegar(1999)haverecentlyprovidedmicro-foundationsfortheEKC,arguingthatthecharacteristicsofcleanuptech-nologyarekeytotheEKC.Thefirstpaperinthisarea,byShafikandBandopadhyay(1992)(abackgroundstudyforthe1992WorldDevelopmentReport,WorldBank1992withresultsgivenprominentprofileinthereportitself),examinesarangeofenvironmentalindicators.Theseincludelackofcleanwater,lackofurbansanitation,ambientlevelsofsuspendedparticulatematter(SPM),ambientsulfuroxides,changeinforestareaduringtheperiod1961–86,theannualrateofdeforestationbetween1961and1986,dis-solvedoxygeninrivers,fecalcoliformsinrivers,municipalwastepercap-ita,andcarbonemissionspercapita.Theirsampleconsistsofobservationsofupto149countriesfortheperiod1960–90,althoughtheircoverageisincomplete.Someofthedependentvariablesareobservedforcitieswithincountries,inothercasesforcountriesasawhole.OnlyinthecaseofairpollutantsisanEKCtyperelationfound.Lackofcleanwaterandlackofurbansanitationarefoundtodeclineuniformly,bothwithincreasingin-TheEnvironmentalRegimeinDevelopingCountries229comeandovertime.Deforestationseemstobeunrelatedtoincome.Riverqualitytendstomonotonicallyworsenwithincome.SeldenandSong(1994),followingShafikandBandopadhyay(1992),focusexclusivelyonairpollutantsintheirexaminationofpossibleEKCrelationships.TheystudyemissionsofSO2,NOX,SPM,andCO.Emis-sionsaremeasuredinkilogramspercapitaonanationalbasiswithpooledcross-sectionalandtime-seriesdatadrawnfromWRI.Thedataareaver-agesfor1973–75,1979–81,and1982–84.Thereare30countriesintheirsample:22high-income,6middle-income,and2low-incomecountries.TheirresultsindicatethatemissionsofCOareindependentofincome,whereasemissionsofotherpollutantsfollowanEKCpattern.However,theturningpointsoccuratmuchhigherlevelsofincomethanintheShafikandBandopadhyay(1992)study.GrossmanandKrueger(1995)havesubsequentlyinvestigatedEKCre-lationshipsusingtheGEMScross-countrydataonairqualityforthepe-riod1977–88andisolateaseriesofenvironmentalindicators:SO2concen-trationinselectedcities,smoke,dissolvedoxygeninwater,BOD,chemicaloxygendemand(COD),nitrates,fecalcoliform,totalcoliform,lead,cad-mium,arsenic,mercury,andnickel.Thedatameasureambientairqualityattwoorthreelocationsineachofagroupofcitiesinanumberofcoun-triesduringtheperiod1977–88.Thenumberofobservationsvariesovertime(52citiesin32countriesin1982,butonly27citiesin14countriesin1988).Theauthorsclaimthatthedataarerepresentativeofcountriesatvaryinglevelsofeconomicdevelopmentandwithdifferentgeographicalconditions,andtheyfindanEKCtyperelationforSO2,smoke,dissolvedoxygen,BOD,COD,nitrates,fecalcontaminationofrivers,andarsenic.Theevidenceislesscompellingfortotalcoliformandheavymetals.AlsointheliteratureisPanayotou(1993),whichestimatesEKC-typerelationshipsforSO2,NOX,andSPM,anddeforestationusingcross-sectionaldatafor1985and,asinSeldenandSong(1994),pollutantsmeasuredinemissionspercapitaonanationalbasis.PanayotoufindsEKC-typerelationsforSO2,NOX,andSPM.TurningpointswereatlevelsofincomelowerthanthoseinSeldenandSong(1994).CooperandGrif-fiths(1994),incontrast,estimatethreeregional(Africa,LatinAmerica,andAsia)EKCsfordeforestationonly,usingpooledcross-sectionaltime-seriesdataforeachregionfortheperiod1961–91andfor64countries.TheyfindnoEKCrelationship.ThesefindingsaresuchthatitisnowoftenarguedthatattemptstoestimateEKC-typerelationshipsshouldbeconfinedtoairpollutantsalone,and,inparticular,toSO2emissions.Asaresult,drawingconclu-sionsfromanyEKCplotastohowoverallenvironmentdamagebehavesasincomechangesisthoughttobefraughtwithproblems.ButevenforSO2,theEKCdoesnotappeartobeaparticularlyrobustdescriptioninthecurrentliteratureofthebehaviorofenvironmentalpol-230RaghbendraJhaandJohnWhalley`-visincomepercapita.Kaufmanetal.(1998)pointoutanum-lutantsvis-aberofeconometricproblemswithEKCestimates,includingviolationsofhomoscedasticity,thenonuseofrandom-andfixed-effectsmethodsinpaneldata,theimproperdefinitionofdependentandindependentvari-ables,andotherproblems.Kaufmanetal.trytocircumventthesediffi-cultiesintheirattempttoidentifyanEKC-typerelationinthecaseofSO2,definingSO2concentrationsasannualaverageconcentrationsinground-levelatmosphereataparticularlocationinacity.Usingapanelof23countries(13developed,7developing,and3centrallyplanned)duringtheperiod1974–89,theiranalysisshowsanEKC-typerelationbetweenemissionspercapitaandspatialintensityofeconomicactivity,aswellasbetweenemissionspercapitaandGDPpercapita.However,theyalsofindevidencethatstillfurtherincreasesinincomepercapitaleadtoafurtherincreaseinemissionspercapita—anN-typeratherthaninverted-U-typerelationbetweenemissionspercapitaandGDPpercapita.UnruhandMoomaw(1998)evaluatewhetherthetransitionfromahighemissionstoalowemissionsstateoccursmechanicallyataparticularincomelevel,assuggestedbyearlierpapers.Theyidentifysomeindustri-alizedcountriesthatseemtohavegonethroughEKC-typetransitions,discoveringthatthesetransitionsspanabroadrangeofincomelevels.7Furthermore,thetransitionsoccurabruptlyandcotemporallyanddonotappeartobetheconsequenceofendogenousincomegrowth.Rapidandcotemporalhistoricalevents,technologicalprogress,andtheneedtoreacttoexternalshocksseemtodrivetheEKCstructure.Ekins(1997)arguesthatthepatternofemissionsofselectedairpollutantsdoesnotindicatetheenvironmentalimpactofsuchemissionsandexaminesanaggregateindicatorofenvironmentalimpactdevelopedbytheOrganizationforEco-nomicCooperationandDevelopment(OECD).Examiningtherelation-shipbetweenthisindicatorandincomepercapita,EkinsfindsnoevidenceinfavorofanEKC.Thus,evenconsideredwithinitsownconfines,therelationbetweeneco-nomicgrowthandenvironmentaldamageseemsmorecomplexthanpor-trayedbytheEKC(Barbier1997).Thereappearstobenothingautomaticaboutthisrelation,norisanyinferenceoncausalitynecessarilyjustified.Oncedegradationeffectsareaddedin,drawingconclusionsastohowoverallenvironmentalqualitychangeswithincomeisevenmoretreacher-ous.Forinstance,soilerosionproblems,measuredrelativetoaggregateincome,wouldseemtorecedeasgrowthoccursand(inrelativeterms)theagriculturalsectorshrinks.Butgrowthisaccompaniedbyurbanization7.Inarecentpaper,TorrasandBoyce(1998)taketheexistenceoftheEKCatfacevalueandaskwhetheritismerelythelevelofincomeoralsoitsdistributionthataffectsemissionspercapita.Theyarguethatamoreevendistributionofincome,higherliteracyrates,andotherindicatorsofpowerleadtoloweremissionspercapita.TheEnvironmentalRegimeinDevelopingCountries231andcongestionproblems,which,relativetoincome,mayrecedeafteratransitionalperiodwhengrowthandnewinfrastructurearetakinghold.7.3.2TheEnvironmentalEffectsofPolicyReform(TradeandEnvironment)Afurtherstrandoftherecentliteratureattemptstoassesshowenviron-mentalqualitychangeswithpolicychanges,includingtradeliberalization;inparticularhowvariouskindsofpollutantconcentrationscanbeaffected.CopelandandTaylor(1994),forinstance,evaluatetheroleoftradewhereenvironmentalqualityisalocalpublicgood(i.e.,damagefrompollutantsremaininthecountry).Theyconsideratwo-countrysingle-periodequilibriumwheregoodsdifferinpollutionintensityinproduction.Countriesdifferintheirendowmentofaprimaryfactor(humancapital);environmentalqualityinbothcountriesisanormalgoodinpreferences,and,withassumedendogenoussettingofpollutionpolicy,thehigher-incomecountryhashigherenvironmentalstandards.Theyfindthatfreetradeshiftspollution-intensiveproductiontowardcountriesscarceinhu-mancapitalandraisesworldpollutionlevels.CopelandandTaylor(1995)consideradifferentcasewhereenviron-mentalqualityisapurepublicgoodtowhichallcountriesareexposed.Tradeeffectsaredifferentinthiscase,sincerelocationofpollution-intensiveindustriestocountrieswithlessstringentenvironmentalprotec-tioncanincreasetheexposureofresidentsinthehomecountryandworksagainstmoreconventionalgainsfromtrade.Sincetherearetransborderexternalitiesinthiscase,nationallybasedpollutionregulationdoesnotleadtoParetooptimality,andfreetradeneednotraisewelfare.Morerecently,Antweiler,Copeland,andTaylor(1998)firstgenerateandthentestaseriesofpropositionsastohoweconomiesbehaveintermsoftheirtradeandenvironmentlinkages.Theyassumeasmall,openecon-omyformulation:Theeconomyhasanumberofagents,producestwofinalgoods,andusestwoprimaryfactors.Oneproductislaborintensiveandinvolvesnopollution,whereastheotheriscapitalintensiveandcausespollution.Theyassumeproducershaveaccesstoanabatementtechnol-ogy,which,forsimplicity,onlyusesthepollutinggoodasaninput.Theyalsoassumethatthegovernmentusesemissionstaxestoreducepollution,and,giventhepollutiontaxrate,theygenerateafirm-levelprofitfunction.Thelevelofthetaxactuallyusedisassumedtobeanincreasingfunctionofwhatanoptimallysettaxwouldbe.Thistreatmentallowsgovernmentbehaviortovaryacrosscountriesandalsoallowsforenvironmentalpolicytorespondanddifferbycountry:Onthedemandside,consumersmax-imizeutility,takingpollutionasgiven;theyassumepreferencesovergoodsarehomothetic,whilethereisconstantmarginaldisutilityofpollution.Themodelallowsthemtodecomposeatotalchangeinpollutionlevelsintoscale,composition,andtechniqueeffects.This,inturn,allowsthemtogenerateanumberoftheoreticalpropositionstotest.Thus,ifeconomies232RaghbendraJhaandJohnWhalleydifferonlywithrespecttotheirdegreeofopennesstotrade,andbothcountriesexportthepollutinggood,thenpollutionwillbehigherinthecountrythatislessopen.Wheretheworldpriceisfixed,thenforagivenlevelofincomeandforcertainsettingsofkeymodelparameters,theyshowthatthecompositioneffectassociatedwithtradeliberalizationinsuchcountriesistoincreasepollution.Theseandotherpropositionsastohowthelinksbetweentradeandenvironmentoperateemergefromtheiranal-ysisastheyfocusonemissionsassociatedwithtrade-relatedpollutingactivity.However,asourearlierdiscussionindicates,emissionsarelikelytocon-stituteonlyaportionoftheoverallwelfarecostofenvironmentalexternali-tiesinliberalizingdevelopingcountries,andotherenvironmentalexternal-itiesmaywellhavedifferentinteractionswithtrade.Thus,ifwithincreasedtradelabormovesfromruraltourbanareasandifthisgeneratesincreasedcongestion,theseadverseconsequenceslinkedtotradecaneasilydomi-natetheoverallenvironmentalimpactcomparedtochangesinemissions.Impactsonsoilerosionfromagriculturaltradeliberalizationabroadcanbeadverse,whilebeingbeneficialathome.Liberalizationinthemanufac-turedsectorcanproduceoppositeimplicationsforsoilerosion.Awiderviewoftheenvironmentalregimeindevelopingcountriescanthusalsoproducedifferentconclusionsastowhatthekeylinkagesbetweenpolicychangesandtheenvironmentactuallyare.7.4MeasuringtheDegreeofEnvironmentalFailureinDevelopingCountriesGiventheprecedingdiscussion,ifpollutantlevelsacrosseconomiesdonotprovideacompletepicturefortheevaluationofcomparativeenviron-mentalperformanceacrosscountriesorovertime,eitherinanalyticalorempiricalwork,whatisamoreappropriatewaytoproceed?Unfortu-nately,theproblemisnotonlytheincompletecoverageofenvironmentalexternalitiesindevelopingcountries;onealsoneedsestimatesofdamagefunctions,whichallowthelossesinvolvedtobecomputedintermsofwel-fare.Thus,evenifeconomieshavehighlevelsofemissionspercapita,iftheabilitytoabatediffersacrosseconomies(suchashealthcarecapabilitiestodealwithadverseeffectsofemissions),thendifferencesinemissionslevelsacrosscountriesdonotnecessarilymapontocomparabledifferentialwel-farelossesduetoenvironmentalfailures.Intheappendixtothischapterweshowforthespecialcaseofastockexternalitythat,evenifanEKCrelationshipisfollowedinemissionspercapita,thisneednotmapontoacomparablerelationshipintermsofwelfare.Forthesereasons,therefore,analternativeapproachisneededtoevalu-atethesignificanceofenvironmentalfailuresacrosseconomiesorovertime,andhencetoassesstheimpactoftheenvironmentalregimeindevel-TheEnvironmentalRegimeinDevelopingCountries233Fig.7.1Abatementlevelsandwelfaregainsfrominternalizationintwoeconomiesopingcountries.TheappropriateconcepttousseemstobeadistancemeasurereflectingtheseverityofthedeparturesfromParetooptimalityassociatedwithexternalities—howfarawayareeconomiesfromParetooptimalityinawelfaresense,andwhatwouldbethepotentialwelfaregainsfrommovingfromthecurrentallocationofresourceswithuninter-nalizedorpartiallyinternalizedexternalitiestocompleteinternalization?Theimpliedmeasureseemstobeamoney-metricmeasure(sayaHicksianmeasure)ofthegainfrominternalizationrelativetoacurrentnoninternal-izedequilibrium.Incomeeffectsassociatedwithdifferentassignmentsofpropertyrightswouldaffecttheprecisefullyinternalizedequilibrium,al-thoughweputtheseissuestoonesidefornow.Suchameasureofgainisimplicitintheliteraturediscussedinsection7.2,whichproducesestimatesofthecostsofvariouskindsofenvironmentalfailuresintermsofGDPpercapita;butmuchofthisliteratureisnotexplicitabouttheprecisewelfareformulationused.Suchmeasuresneednotbehaveinanywaythatisnecessarilycollinearwithlevelsofemissionsorintensityofenvironmentalfailure.Figure7.1showsschematicallyhowacomparisonacrosstwoeconomieswithdifferinglevelsofemissionsmayyieldlargergainstotheeconomywithsmalleremis-sions.Here,werepresentmarginalbenefit(MB)andmarginalcost(MC)ofabatementfunctionsfortwoeconomies.EconomyAhasmoresteeplyslopedfunctions,andinParetooptimalityhassmallerabatementthanB.Butthegainsfromabatement(internalization)arelargerinAthaninBbecauseofthemoreshallowlyslopedfunctionsinB.Comparingpollutantlevelsacrosseconomiesneedgivenoguideastotherelativesizeofthegainsfrominternalization.Theseeminglylargeestimateswereportedearlierofthegainsfromin-ternalizingenvironmentalexternalitiesindevelopingcountriesalsosuggesttheperhapsobviousquestionofwhyitisthatifinternalizationgainsaresolarge,moreinternalizationhasnotoccurred.Itwouldbewrongtosaythatnointernalizationhasoccurredinthesecountries.Atthevillagelevel,234RaghbendraJhaandJohnWhalleyterracingandotherschemesaredesignedtoremedysomeoftheillsofsoilerosion.Nationalenvironmentalregulationoftenapproacheslevelsofstringencyseeninregulationindevelopedcountries,butisaccompaniedbyproblemsofenforcementandcompliance.Inmanydevelopingcoun-tries,environmentalnongovernmentalorganizations(NGOs)arealsoex-tremelyactive,generatingarisingprofileforenvironmentalissuesinlocalpolicydebate,eventhoughlargepotentialgainsfrominternalizationstillseemtoremain.Variousexplanationsaboundforthepresenceoftheseseeminglylargepotentialgains.Oneisthatthetechnologyofinternalizationisbothcapitalintensiveandhighcostforlow-incomecountries.Monitoringdevicesandadministrationofenvironmentalfeesandfinesallrequireinputsonascalenoteasilyattainedinlow-incomecountries.Anotheristhatifenvironmen-talqualityiscostlytoprovide,thenmodelswithtraditionalpreferencesandtechnologywouldnaturallyimplythatabatementlevelsarelowerinlow-incomecountries.Theseeffects,inturn,wouldbeexacerbatedbyin-comeelasticitiesofdemandforenvironmentalqualityexceeding1,asisoftenclaimed.´pez1998;MalerAnotherdirectionexploredinrecentliterature(seeLo1998)isthatoutsideshockstosocialsystemsareasignificantcompound-ingfactor,eitherdisruptingordelayinginternalizationandproducinglow-eredenvironmentalquality.Particularlyimportantinthisdiscussionistheobservationthatenvironmentalmanagementsystemsindevelopingcoun-triescommonlyrelyoninformalsocialnorms,whichcanpartiallyorwhollybreakdownunderrapidpopulationgrowth,technologicalinnova-tion,orchangesinmarketoutcomes.Previouslyreasonablywell-managedresourcescanbecomeopen-access,poorlymanagedresources,withwors-enedenvironmentalqualitytheresult.DasguptaandMaler(1991)arguethat,viewedintheseterms,povertyanddegradationcanevenbereinforc-ing.Thus,ifdeforestationmovestheavailablefirewoodinforestspro-gressivelyfurtherfromvillages,familiesmayhavemorechildrentooffsettheincreasedtimerequiredtocollectfirewood.8Populationgrowthishigherandwithitthedemandforfirewood,producingfurtherdegra-dation.7.5ComparingPolicyRegimesinDevelopedandDevelopingCountriesWeoftentendtothinkofdevelopingcountriesasfollowingthedevelop-mentalexperienceofdevelopedcountrieswithaformofcompressedlag.8.ThishypothesishasbeentestedempiricallybyFilmerandPritchett(1996)usinghouse-holddataforPakistanfor1991–92.Theyconcludethathouseholdslivinginareasinwhichthedistancefromfirewoodisgreaterhavemorechildren.TheEnvironmentalRegimeinDevelopingCountries235OECDcountriesoversome200yearshavegrownanddeveloped,trans-formingthemselvesfirstfromagrariansocietiestoindustrialeconomiesbasedonheavyindustry(steelandchemicals)tomodernhigh-technologyservice-basedeconomies.Developingcountriesarefollowingthisexperi-enceatvaryingspeedsandindifferentways,butthetransitiontimeisclearlyshorter.Korea,forinstance,hastransformeditselffromacountrywithlowerincomepercapitathanIndiainthemid-1950stoalower-incomeOECDcountrytoday—a40-yeartransition.Furthermore,unlikedevelopedcountriesattheheightoftheirindustrialgrowth,developingcountriestodayareunderconsiderablepressuretoreduceenvironmentalstress.Thispressure(sometimesbackedbythethreatofpunitiveaction)comesfromanumberofsources,suchasgovernmentsofdevelopedcoun-tries,internationalfundingagencies,academia,localandinternationalNGOs,andthedevelopingcountries’ownbodiesofjurisprudence.Suchpressureswereunheardofduringthedaysofrapidindustrialgrowthofthecurrentlydevelopedcountries.Itisonlyrelativelyrecently,however,thatdevelopedcountrieshavegainedtheenvironmentalawarenesstheynowhaveandhavedevelopedsystemsofenvironmentalmanagementthatcontrolemissions,treatwaste,andotherwiseabateenvironmentaldamage.AttheheightoftheOECDcountries’industrialrevolutions,effectivelynoenvironmentalcontrolswereinplace.Whatthenshoulddevelopingcountriesdo?Theexperienceofdevelopedcountrieswouldseemtoindicatethattheyshouldadoptfewenviron-mentalcontrolsandthatwithincomegrowthenvironmentalqualitywillimprove.Indeed,agreatfearisthatattemptstoheightenenvironmentalregulationwillonlyservetoslowgrowthand,hence,sloweventualachievementofhigherenvironmentalqualitythroughgrowth.Ontheotherhand,becauseofproblemsofcomplianceonecanarguethatper-hapsdevelopingcountrieshavenochoicebuttofollowtheolderdevelopedcountries’industrialrevolutionexperienceoflargelybenignneglect.Thereare,however,somekeydifferencesinthedevelopingcountries’experienceinthisareacomparedtotheindustrialrevolutionofold.First,thetimeperiodsinvolvedarecompacted,andhencetheflowofenviron-mentaldamageperyearduringindustrializationislarger.Second,theshocksthathittheeconomiesarealsomuchmoreseverethanwastrueoftheoldindustrialrevolutionizers.Theindustrial-revolution-eraeconomiesofthedevelopedcountriessimplydidnotexperiencepopulationgrowthratesof3percentormoreperyear,massivegrowthinurbanvehicledensi-ties,andotherelementsthatcontributetotoday’senvironmentalillsinthedevelopingworld.Notonlyistheprocessmorecompact,thetime-adjustedseverityofdamageprobablyexceedsthatexperiencedintheOECD100yearsago.Third,eventhoughweaklyadministered,thereareabatement236RaghbendraJhaandJohnWhalleytechnologiesthatcanbeandarebeingemployed;andeventhoughthereispoliticalopposition,environmentalmanagementistakingroot.Thus,thelargecostestimateswereportedearlierandthescopeofenvi-ronmentalproblemsindevelopingcountriessuggesttousthatamuchmoreactivistenvironmentalpolicyregimewillcontinuetoemergeindevel-opingcountriesthanwastrueinindustrialcountriessome100yearsagoastheygrewandindustrialized.And,unlikethepast,thisregimewillhaveanequalfocusondegradation,ifnotadominantfocusondegradationoverpollution.7.6ConcludingRemarksThispaperdiscussestheenvironmentalregimeindevelopingcountries,stressingboththecomplexityoftheregimeandthewide-rangingnatureofenvironmentalexternalitiesthatgobeyondmoreconventionalliteraturediscussionofpollutantlevels.Itsuggeststhatafullcharacterizationofthisregimeneedstofocusonexternalityproblemssuchassoilerosion,open-accessresources,andcongestionproblemsinurbanareas.Thepaperstressesthatfromavailablestudiesthegainsfrominternalizationoftheseexternalitiesseemtobelarge,potentiallyexceedingnumerical(model-based)estimatesofgainsfromconventionalpolicyreforms(suchastradeortaxreform)bysubstantialordersofmagnitude.Also,themajorityofsuchgainsseemtoarisefrominternalizingexternalitiesassociatedwithdegradation(soilerosion,open-accessresources,andcongestion)ratherthanpollution.Wealsostresshowexistingliteraturethatdiscusseshowtheenvironmentalsituationchangeswithgrowth(theEKC)coversonlypartoftheenvironmentalsituation;apointthatalsoappliestootherpartsoftheliteraturesuchasthatonpolicyreforms(tradeliberalization)andenvironmentalquality.Havingdevelopedthispictureoftheenvironmentalregimeindevel-opingcountries,thepaperconcludesbysuggestingthatameasureisneededofoverallenvironmentalperformanceintermsofdeparturesfromParetooptimalitysoastogiveamoney-metricwelfaremeasureofthegainsofmovingtocompleteinternalization.Italsodiscussessomeofthereasonsforthelackofinternalization,citingrecentliteraturethatarguesthatsocialconventionsdefiningimplicitmanagementregimescomeunderstressasrapidurbanization,rapidpopulationgrowth,andothershockstosocialsystemsoccur.Theoverallthemeofthepaper,repeatedthroughout,isthatindiscussingtheenvironmentalsituationindevelopingcountries,amorecomprehensivesenseofwhatthisregimecomprisesisneeded.TheEnvironmentalRegimeinDevelopingCountries237AppendixInternalizationGainsandtheEnvironmentalKuznetsCurveTheEKCliteraturediscussedinthischapterseeminglypointstothecon-clusionthatthereisnoclearevidenceinfavoroftheEKC.EventhoughtheEKCitselfmaybeempiricallydubious,itswelfareinterpretationalsohastobehighlyqualified.Here,wedevelopamodelwhereoptimalityisdefinedasinternalization,andsincesuchinternalizationis,inprinciple,independentofthelevelofemissions,theEKCevenifitweretoexistlacksanywelfarecontent.Weuseanamendedversionofthegrowthwithstockexternalitiesmodel,showingthatalternativetechnologicalassumptionscangiveusdifferent(optimal)relationsbetweenemissionsandincome,andeachsuchrelationisconsistentwithperfectinternalization.Theem-phasisinthemodelisonshadowpricingtheexternaleffectappropriately(Ko,Lapan,andSandler1992).Inthemodel,(1)laborisnormalizedtoequal1.(2)Output,y,dependsuponcapital,k,andemissions,e,yϭf(k,e).Animportantpointhereisthenatureoftherelationshipbetweenkande.WeassumethatfkeϾ0,(i.e.,capitalandemissionsaresubstitutes).Wefurtherassumethatthereexistsalevelofemissionsesuchthatthemarginalproductofemissionsforagivenlevelofcapitalis0.(3)Capitalaccumulatesaccordingtotheequation(A1)˙=f(k,e)−c−␦k,kwherecisconsumptionand␦istherateofdepreciationofcapital.(4)Pollutionaccumulatesaccordingtotherelation(A2)˙=−bS+e,Swherebisfixed.Thesocialplanner’sproblemistochoosenonnegativeconsumptionandemissionspathsthatsolvetheinfinitehorizonmaximizationproblem,(A3)∞0∫e−␳tU(C,S)dt,subjecttoequations(1)and(2).HereU(и)istheinstantaneousutilityoftherepresentativeconsumerand␳isthediscountrate.TheHamiltonianforthisproblemis(A4)H(k,S,c,e)=U(c,S)+␪1(t)[f(k,e)−c−␦k]+␪2(t)(e−bS),where␪1and␪2arecostatevariables.First-orderconditionsimply(A5)Uc=␪1,238RaghbendraJhaandJohnWhalleyassumingwealwayshaveaninteriorsolution;and(A6)␪1(∂f/∂e)+␪2≤0,withequalityife*(t)Ͼ0.Thecanonicalequationsare(A7)(A8)˙=[␪1+␦−(∂f/∂k)]␪1,˙=[(␳+b)␪]−∂U/∂S,␪22andtransversalityconditionsapply:(A9)lime−␳t␪1(t)=lime−␳t␪2(t)=lime−␳tk(t)=lime−␳tS(t)=0,t→∞t→∞t→∞t→∞whichrequirethatthepresentvalueofcapitalandpollutionbecomesneg-ligibleatinfinity.Thiswelfareexercisereferstotheoptimalsolutionobtainedinacom-mandeconomy.Fromthefirst-orderconditionswecansolveforoptimalconsumptionandoptimalemissionsasc*ϭc(k,S,␪1,␪2)ande*ϭe(k,S,␪1,␪2).Ifweassumethattheproductionandtheutilityfunctionsarestrictlyconcaveinthiscase,thenforgivenvaluesofparameters,c*ande*,theissueishowthismaybeexpectedtovarywithc.Ifweusethisresultof␪2,thenitfollowsthat,fromawelfarepointofview,therelation-shipbetweenconsumptionandemissionsismonotonicallyfalling.Richercountrieswillhavehigher␪2andtherefore,loweremissionsceterisparibus␳thanpoorercountries.Inacompetitivemarketeconomytherepresentativeconsumertakesasgiventimepaths{w(t),r(t),␲(t)}fortε[0,∞),ofwages,interestrates,andprofits.TheinstantaneousutilityoftheconsumerisdefinedbyU(c,S)asbefore.Theconsumersellsthefixedlaborinput(normalizedtounity)toarepresentativefirmatthemarket-determinedwagerate,andrentsoutcapi-tal,k(t),atthemarketrateofinteresttothefirm.Therepresentativefirmmaximizesprofitsundercompetitiveconditions.Itgeneratesemissionse(t)perunittimeandpaysatax␭(t)ontheseemissions.Totaltaxproceedscollectedbythegovernmentareredistributedtotheconsumer.Thecon-sumermaximizesutilityandhasperfectforesightaboutmarketwageratesandothervariables.Theconsumermaximizes(CP)subjectto∞0∫e−␳tU(c(t),S(t))dt,˙=␲(t)+rk(t)+␭(t)e(t)−c(t)−␦k(t),kTheEnvironmentalRegimeinDevelopingCountries239andtreatsSasaparameter.Thevariable␳istheconsumer’sdiscountrateand␦istherateofdepreciationofcapital.Thefirmtakesasgiven(andhasperfectforesightabout)timepathsofemissionstaxes{␭(t),tε,[0,∞)}alongwiththetimepathsofwageandinterest.Thefirmcanreduceitstaxliabilitiesbyreducingoutput.Outputisproducedaccordingtoastandardneoclassicalproductionfunctionsothatthefirmchoosesk(t)ande(t)tosolvetheproblem(FP)max␲(t)=f(k(t),e(t))−r(t)k(t)−␭(t)e(t).Giventhattheconsumerperfectlypredictsthetimepathsof{w(t),r(t),␲(t)}andthefirmperfectlypredictsthetimepathsof{w(t),r(t),␲(t)},thentheconsumerwilldetermineconsumptiondemand(cd)andcapitalsupply(ks),whereasthefirmwilldetermineconsumptionsupply(cs)andcapitaldemand(kd)andtheemissionse(t).Thepaths{w(t),r(t),␲(t),␭(t)}areaperfectforesightcompetitiveequilibriumwithemissionstaxesifthesolution{cs(t),kd(t),e(t)}ofequation(FP)issuchthatifprofitsaredefinedby␲(t)ϭf(k(t),e(t))Ϫr(t)k(t)Ϫ␭(t)e(t)foreachtandif{cd(t),ks(t)}solvesequation(CP),thenforalltε[0,∞)wehave(1)cd(t)ϭcs(t)goodsmarketorflowequilibrium;(2)ks(t)ϭkd(t)capitalmarketorstockequi-librium;(3)ec(t)isthecompetitiveemissions;and(4)Sϭec(t)ϪbS(t),S(0)ϭS0(evolutionofpollutionstock).Anexaminationoftheplanner’sprobleminequation(A1)immediatelyrevealsthatiftheemissionstaxisdefinedas␭(t)ϭϪ␪2(t)/␪1(t),thecompet-itiveequilibriumsolutionsforequations(CP)and(FP)forthefirmareidenticaltothesolutionofthesocialoptimizationproblem.Toseethis,assumethatequation(FP)hasaninteriorsolution;thenwemusthave(A10)(A11)∂f/∂k=r,∂f/∂e=␭.Thesedeterminethedemandforcapitalandthecompetitivesupplyofemissions.Giventhis,thentheconsumermaximizesthefollowingHamil-tonian:(A12)H=U(c,S)+␥(t)(␲+rk+␭e−c−␦k).Thefirst-orderconditionsare(A13)(A14)(A15)∂U/∂c=␥,˙=(␳+␦−r)␥,␥˙=␲+rk+␭e−c−␦kkwith 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curve.EcologicalEconomics25:147–60.UnitedNations(U.N.).1998.UNhumandevelopmentreport.NewYork:OxfordUniversityPress.Unruh,G.C.,andW.R.Moomaw.1998.AnalternativeanalysisofapparentEKC-typetransitions.EcologicalEconomics25:221–29.WorldBank.1992.Worlddevelopmentreport,1992.Washington,D.C.:OxfordUni-versityPress.242RaghbendraJhaandJohnWhalleyWRI(WorldResourcesInstitute).1996.Worldresources1996–97.NewYork:Ox-fordUniversityPress.CommentEdwardB.BarbierThepaperbyJhaandWhalleyontheenvironmentalregimesfoundindevelopingcountriesisatimelyandcogentlywrittenanalysisofthesub-ject.Theauthorsreviewawiderangeofliteratureand,indoingso,covermanyissuesconcerningthediverseenvironmentalproblemsfacedbyde-velopingcountries.Theauthorsconfinetheiranalysisofthispotentiallybroadtopictothreemainpoints.First,theyarguethat,althoughmuchattentionhasfocusedonthegrowingwelfareimplicationsofincreasedpollutionlevelsindevelopingcountries,problemsofdegradation(i.e.,soilerosion,defor-estation,overexploitationoffisheries,etc.)deservemuchmoreattention.Second,availableevidenceontheeconomiccoststodevelopingcountriesofenvironmentalproblemssuggeststhatthesecostsarelarge,particularlywithrespecttothedegradationproblems.Finally,citingevidencefromtheemergingenvironmentalKuznetscurve(EKC)andtradeandenvironmentliterature,theauthorspointoutthattherelationshipbetweengrowth,pol-icyreform,andenvironmentalqualitymaydiffersignificantlydependingonwhetheroneisexaminingdegradationorpollutionproblems.Theau-thorsconcludebyexaminingaperplexingissue:Ifthewelfarecostsofmanyenvironmentalexternalitiesaresogreatindevelopingcountries,whyhasmoreinternalizationofthesecostsnotoccurred?Iwouldliketomakesomegeneralobservationsconcerningthesekeypointsofthepaper.First,Icommendtheauthorsforbasingtheirpaperonadistinctionbetweenconventionalpollutionproblemsandawider,morepervasiveproblemsofenvironmentaldegradationindevelopingcountries.Theneedtomakesuchadistinctioniscriticalforanalyzingenvironmentalandresourceissuesindevelopingcountries,becausethefundamentaleconomicandphysicalprocessesunderlyingdegradationproblemsrequireadifferentapproachtoanalyzingdegradationasop-posedtopollutionproblems(Barbier1989;Dasgupta1982).Unfortu-nately,westillneedtoimproveourunderstandingoftheeconomicaspectsofenvironmentaldegradationindevelopingcountries.Asthedisciplineofenvironmentalandresourceeconomicshasbeendevelopedlargelyinthericheroradvancedindustrializedcountries,mostoftheanalyticalap-proachesarebettersuitedtoanalyzingmoreconventionalenvironmentalEdwardB.BarbieristheJohnS.BugasDistinguishedProfessorofEconomicsintheDe-partmentofEconomicsandFinance,UniversityofWyoming.TheEnvironmentalRegimeinDevelopingCountries243problemssuchaspollution,nonrenewabledepletion,andstandardtimber-andfishery-harvestingissues.Morecomplexenvironmentalproblems,suchaspoverty,landdegradation,anddeforestationlinkagesindevel-opingcountries,clearlyrequireadifferentcategoryofanalysisandonefocusinginparticularontheincentivesofpoorruralhouseholdstoman-agetheirlandandotherresourcesattheirdisposal(Barbier1997a).However,Idohavesomeissuestoraiseconcerningthewayinwhichtheauthorsdistinguishenvironmentalpollutionanddegradation“exter-nalities,”asindicatedintable7.1ofthechapter.Inturn,theseissuesleadtomoresubstantivepointsdetailingwhyenvironmentaldegradationisafundamentaldevelopmentprobleminlow-incomecountries.Itisimportanttorecognizethattwotypesofenvironmentalexternalitiescanoccurthroughenvironmentaldegradationandpollution:flowexter-nalitiesandstockexternalities.Theformeristhemorecommontypeofthird-partyexternalitythatisassociatedwithconventionalpollutionprob-lems,oraslistedinthetable,soilerosionandpesticiderunoff(inciden-tally,thelatterisreallyanagrochemicalpollutionproblemandnota“soilquality”issueastable7.1suggests).Incontrast,stockexternalitiesarisethroughnonoptimaldepletionofarenewableresourcestockovertime;thatis,theyrepresenttheforgonefutureincomeassociatedwithexcessivedepletionoroverexploitationofaresourcetoday.Theauthorsseemtoimplythattheopen-accessresourcesofforests,fisheries,andaquifersmaysufferfromoverexploitation,hencecausingastockexternalityproblem.However,suboptimaldepletion,degradation,oroverexploitationofanytypeofresourcestock(renewable,semirenewable,ornonrenewable)canleadtostockexternalities.Forexample,laterinthepaper,theauthorsquotenumerousestimatesoftheon-sitecostofsoilerosionacrossdevel-opingcountries,whichisessentiallythestockexternalityproblemoftheforgonecropincomearisingfromexcessivetopsoilandsoil-fertilitydeple-tion.Yet,surprisingly,thiserosioncostisnotincludedintable7.1.Anequallysurprisingomissionisdepletionoffreshwaterresources,whichhasbeencitedasacriticalenvironmentalissueindevelopingcountriesincom-ingdecadesbyanumberofinternationalsources,includingthosecitedbytheauthors(UNDP1998;WRI1996).Thispointmayseemtrivial,butitisnot.Theauthorssuggest,correctlyinmyview,thatindevelopingcountriesresourcedegradationproblemsmaybeeconomicallymoresignificantthanpollution.However,itisalsopossiblethatthemostsignificanteconomiccostsassociatedwithresourcedegradationindevelopingcountriestaketheformoftheforgoneincomeassociatedwithresourcedepletionanddegradationstockexternalities,ratherthantheconventionalflowexternalitiesassociatedwithairandwa-terpollution,off-siteimpactsofsedimentation,andagrochemicalrunoff.Thisinturnimpliesthatdevelopingcountriesshouldbemoreconcernedaboutthestockexternalitiesarisingfromresourcedegradation,because244RaghbendraJhaandJohnWhalleytheytranslateintoforgoneincomeopportunities,thusunderminingeco-nomicdevelopmenteffortsmoredirectly.Theauthorsareclearlyacknowl-edgingthispoint,atleastimplicitly,bystressingthatresourcedegradationimposesdisproportionatelyhighwelfarecostsontheseeconomies.Thisiscertainlytrue.However,amorefundamentalreasonwhythisisthecaseisthatmanypoorcountriescontinuetoremaineconomicallydependentonnaturalresourcesfortheircurrentdevelopmentefforts,and,forthefore-seeablefuture,efficientandsustainablemanagementofthisresourcebaseiscriticaltosustainingeconomicdevelopment.Hence,giventheeconomicimportanceofmanyruralrenewableresourcesintheseeconomies,itisnotsurprisingthatdegradationoftheseresourcesimposessignificantlylargewelfarelossesandeconomiccosts.Thereisalsoevidenceemergingfromtherecentliteraturesuggestingthatdevelopingcountriesendowedwithabundantnaturalresourcesarewastingthispotential“naturalcapital”wealthratherthanefficientlyex-ploitingitforsustainableeconomicdevelopment.Forexample,manylow-incomeandlower-middle-incomeeconomies—especiallythosedisplayingloworstagnantgrowthrates—arehighlyresourcedependent(Barbier1994).Notonlydotheseeconomiesrelyprincipallyondirectexploitationoftheirresourcebasesthroughprimaryindustries(e.g.,agriculture,for-estry,andfishing),butalsoover50percentormoreoftheirexportearn-ingscomefromafewprimarycommodities.Theseeconomiestendtobeheavilyindebtedandareexperiencingdramaticland-usechanges—es-peciallyconversionofforestareatoagriculture—aswellasproblemsoflowagriculturalproductivity,landdegradation,andpopulation-carrying-capacityconstraints.Arecentcross-countryanalysisbySachsandWarner(1995)confirmsthatresource-abundantcountries(i.e.,countrieswithahighratioofnaturalresourceexportstoGDP)havetendedtogrowlessrapidlythancountriesthatarerelativelyresourcepoor.Explanationsastowhyresourcedependencemaybeafactorininflu-encingeconomicgrowthpointtoanumberofpossiblefundamentallink-agesamongenvironment,innovation,trade,andlong-termgrowththatarerelevanttopooreconomies.Forexample,thelimitationsofresource-baseddevelopmenthavebeenexaminedbyMatsuyama(1992)andSachsandWarner(1995).Matsuyamashowsthattradeliberalizationinaland-intensiveeconomycouldactuallysloweconomicgrowthbyinducingtheeconomytoshiftresourcesawayfrommanufacturing(whichproduceslearning-inducedgrowth)towardagriculture(whichdoesnot).SachsandWarnerextendtheMatsuyamamodeltoallowforthefull“Dutchdisease”influencesofamineral-oroil-basedeconomy;thatis,whenaneconomyexperiencesaresourceboom,themanufacturingsectortendstoshrinkandthenon-traded-goodssectortendstoexpand.Theauthors’theoreticalandempiricalanalysessupporttheviewthatakeyfactorinfluencingen-TheEnvironmentalRegimeinDevelopingCountries245dogenousgrowtheffectsistherelativestructuralimportantoftradablemanufacturingversusnaturalresourcesectorsintheeconomy.Ofcourse,suchmodelsdonotincludetheeffectsofresourcedegrada-tionordepletionperse.However,itisfairlystraightforwardtodemon-stratesomeofthepossibleinfluencesofenvironmental-assetdepletiononinnovationandgrowthinaresource-dependenteconomy,aswellastheroleofpolicyandinstitutionalfailuresinthisprocess(Barbier1999;Bar-bierandHomer-Dixon1999).Intermsofpolicyimplications,thissuggeststhatlow-incomecountriesshouldbepursuingatwo-prongedstrategyforsustainedeconomicdevelopment.Ontheonehand,correctingproblemsofchronicpolicyfailures,socialinstabilities,andpoorinstitutionsthatinhibitinnovationandlong-termgrowthprospectsshouldalsoenhancethecapacityoftheseeconomiestoreinvesttherentsfromnatural-resourceexploitationintomoredynamicandadvancedsectorsoftheeconomy(Barbier1999;Matsuyama1992;SachsandWarner1995).However,fo-cusingsimplyonpoliciesandinstitutionstofosterimprovedinnovationintheadvancedeconomicsectorsoflow-incomeeconomiesmaynotbesufficient.Becausetheseeconomiesarehighlydependentontheirnaturalresourcebaseforeconomicgrowthanddevelopmentoverthemediumterm,thetake-offintohighergrowthratesandeconomicdevelopmentwillbedirectlyrelatedtotheirabilitytomanagenaturalresourcesefficientlyandsustainablyoverthemediumtolongterm.Onceagain,therefore,wearebacktothemainissueraisedbytheauthorsofthispaper:Theneedfordevelopingcountriestorecognizetheeconomicconsequencesandwelfarelossesarisingfrompervasiveruralresourcedegradation.Amajorcauseofenvironmentaldegradationindevelopingcountriesisthedistortionineconomicincentivescausedbymisguidedpolicies.Curi-ously,JhaandWhalleydonotdiscussthisaspectoftheproblemverymuchintheirpaper.Yetthereissubstantialevidenceemergingthatpolicydistortionsandfailuresareakeyfactorintheeconomicdisincentivesforruralhouseholdstoimprovelong-term,efficientmanagementattheirdis-posal(Barbier1997a).Therearetwoaspectsofthisdisincentivesprob-lemthatareroutinelyignoredbypolicymakers.First,empiricalevidencesuggeststhatpoorerhouseholdsinruraldevelopingregionsaremoreconstrainedintheiraccesstocredit,inputs,andresearchandextensionservicesnecessaryforinvestmentsinimprovedlandandresourcemanage-ment.Poverty,imperfectcapitalmarkets,andinsecurelandtenuremayreinforcethetendencytowardshort-termtimehorizonsinproductionde-cisions,whichmaybiasland-usedecisionsagainstlong-termmanagementstrategies.Second,povertymayseverelyconstraintheabilityofpoorhouseholdstocompeteforresources,includinghigh-quality,productiveland.Inperiodsofcommodityboomsandlandspeculation,wealthierhouseholdsgenerallytakeadvantageoftheirsuperiorpoliticalandmarket246RaghbendraJhaandJohnWhalleypowertoensureinitialaccesstobetter-qualityresourcesinordertocap-turealargershareoftheresourcerents.Poorerhouseholdsareeithercon-finedtomarginallandareaswhereresourcerentsarelimitedoronlyhaveaccesstohigher-qualityresourcesoncetheyaredegradedandanyrentsdissipated.Economicandsectoralpoliciesindevelopingcountriesusuallyreinforcethesestructuraldisincentivesforimprovedlandmanagementratherthanmitigatingthem.Forexample,inColombiadistortionsinthelandmarketpreventsmallfarmersfromattainingaccesstoexistingfertileland(HeathandBinswanger1996).Thatis,becausethemarketvalueoffarmlandisonlypartlybasedonitsagriculturalproductionpotential,themarketpriceofarablelandinColombiagenerallyexceedsthecapitalizedvalueoffarmprofits.Asaresult,poorersmallholdersand,ofcourse,landlessworkerscannotaffordtopurchaselandoutoffarmprofits,nordotheyhavethenonfarmcollateraltofinancesuchpurchasesinthecreditmarket.Incon-trast,largelandholdingsserveasahedgeagainstinflationforwealthierhouseholds,andlandisapreferredformofcollateralincreditmarkets.Hence,thespeculativeandnonfarmingbenefitsoflargelandholdingsfur-therbidupthepriceofland,thusensuringthatonlywealthierhouseholdscanaffordtopurchaseland,eventhoughmuchofthelandmaybeunpro-ductivelyfarmedorevenidle.Thusunlessbetterpoliciesaredesignedtocorrectsuchfundamentaldistortionsinlow-incomeeconomies,thedisincentivesforimprovedlandmanagementwillremain.Thisinturnimpliesthateconomicgrowthindevelopingcountrieswillcontinuetobeaccompaniedbyrapidland-usechangeandresourcedegradation.Astheauthorsimply,evidencethatthismaybeaproblemisemergingfromtherecentEKCliterature.RecentlyIhadtheprivilegeofeditingaspecialjournalissueontheEKC.Inmyreviewoftheliterature,itbecameclearthatperhapstheonlysignificantresource-depletionindicatorthathasbeenexaminedforevidenceofanEKCrelationshiphasbeendefores-tation(Barbier1997b).However,asJhaandWhalleyhavealsoindicated,theevidenceonthisrelationshipismixed.Somestudiessuggestthatdefor-estationconformstotheEKChypothesis;othershavefounditdifficulttoestablisharelationshipbetweenanyindicatorofdeforestationandincome(CropperandGriffiths1994;Shafik1994;AntleandHeidebrink1995;Panayotou1995).Perhapsmostworryingisthat,whereanEKCrelation-shipfordeforestationhasbeenestablished,therealpercapitaincomelev-elsofvirtuallyalldevelopingcountriesintheworldarewelltotheleftoftheturning-pointlevelofincomeonthecurve,wheredeforestationstartstodecline.Theimplicationsofthisformedium-termglobaldeforestationtrendswereillustratedwhencolleaguesandIcombinedanestimatedEKCdeforestationrelationshipwithaggregatedforecastsofincomeandpopula-tionlevelsforindividualcountries(Stern,Common,andBarbier1996).TheEnvironmentalRegimeinDevelopingCountries247Ourprojectionsshowthatglobalforestcoverdeclinesfrom40.4millionsquarekilometersin1990toaminimumof37.2millionsquarekilometersin2016,andthenincreasesslightlyto37.6millionsquarekilometersin2025.However,instarkcontrast,overthesameperiodtropicalforestsarenearlyhalvedfrom18.4to9.7millionsquarekilometers.Onamorepositivenote,recentstudiesalsodemonstratethatEKCsarehighlysusceptibletostructuraleconomicshiftsandtechnologicalchanges,whichareinturninfluencedbypolicy.Forexample,Komen,Gerking,andFolmer(1997)pointtothekeyroleofpublicinvestmentsforenvironmen-talimprovementsinreducingenvironmentaldegradationasincomelevelsrise,whichmayexplainthestrongEKCandevendecreasingrelationshipsfoundforsomepollutionindicatorsinOECDcountries.Panayotou(1997)findsthatimprovedpoliciesandinstitutionsintheformofmoresecurepropertyrights,betterenforcementofcontracts,andeffectiveenvironmen-talregulationscanhelptoflattentheEKCforSO2acrosscountries.Therearealsoencouragingsignsthatreformofenvironmentalpolicyisbeginningtoprogressindevelopingcountries.Forexample,arecentre-viewbytheWorldBank(1997)identifiesavastrangeofsuchenvironmen-talpolicyinnovationsthathavebeenimplementedacrosstheglobesincethe1992RioEnvironmentandDevelopmentConferencetoimprovere-sourcemanagementandcontrolpollution.Ofparticularimportanceisthatmanyofthesepoliciesarebeingadoptedbydevelopingcountriesandthattheyincludemarket-basedinstrumentsaswellasremovalofmajorˆadaMotta1998).Inpolicydistortions(seeHuber,Ruitenbeek,andSeroaddition,someofthesereformshavebeentargetedatimprovedlandandforestrymanagement.Whatismore,theyarebeingimplementedaspartofmoregeneraleconomy-wideandsector-specificreformsintheseecono-mies.Thisisanexcitingprospectbecauseitsuggeststhatmarket-basedinstruments,theremovalofeconomicdisincentives,andenvironmentalpolicyimprovementsarebeingconsideredtogetherasimportantinstru-mentsinimprovingthelinkbetweeneconomyandenvironment,thushelp-ingtoreversethechainofunsustainabledevelopmentinpoorerecon-omies.Finally,Iendorsethegeneralviewexpressedbytheauthorsthatthepotentialwelfaregainsfromtheinternalizationofenvironmentaldegrada-tionexternalitiesindevelopingcountriesarelikelytobelarge.Furtherstudiesofthesepotentialgainsarethereforeanimportantpriority.Insup-portofthisview,theauthorscitethefewavailablestudiesthatattemptsuchvaluations,includingestimatesofthecostofsoilerosionindevel-opingcountriescontainedinarecentpaperofmine(whichisnowpub-lishedasBarbier1998).However,mypaperalsosoundsanoteofcautionaboutsuchcostestimates.Virtuallyallofthestudiesoftheon-sitecostsofsoilerosionindevelopingcountriesthatIhavereviewedhaveinvolvedaveryflawedmethodologicalapproachforestimatingthiscost.Inmost248RaghbendraJhaandJohnWhalleycases,thishasledtoinaccurateestimatesoftheincomelossesassociatedwitherosion.Althoughthishasbeeninevitablegiventhedatalimitationandotherconstraintsfacedbymanyofthestudies,asIoutlineinmypaper,itistimethatwebeginemployingmoremethodologicallysoundapproachesandthusimproveourestimationsoftheeconomiccostsoflanddegradationindevelopingcountries.IbelievethisviewissharedbyJhaandWhalleyintheirpaper.ReferencesAntle,J.M.,andG.Heidebrink.1995.Environmentanddevelopment:Theoryandinternationalevidence.EconomicDevelopmentandCulturalChange43(3):603–25.Barbier,E.B.1989.Economics,naturalresourcescarcityanddevelopment:Conven-tionalandalternativeviews.London:EarthscanPublications.———.1994.Naturalcapitalandtheeconomicsofenvironmentanddevelopment.InInvestinginnaturalcapital:Theecologicaleconomicsapproachtosustainabil-ity,ed.A.M.Jansson,M.Hammer,C.Folke,andR.Costanza,291–322.Wash-ingtonD.C.:IslandPress.———.1997a.Theeconomicdeterminantsoflanddegradationindevelopingcountries.PhilosophicalTransactionsoftheRoyalSocietyser.B,352:891–99.———.1997b.IntroductiontotheenvironmentalKuznetscurvespecialissue.En-vironmentandDevelopmentEconomics2(4):369–82.———.1998.Theeconomicsofsoilerosion:Theory,methodologyandexamples.InTheeconomicsofenvironmentanddevelopment:Selectedessays,ed.E.B.Bar-bier.London:EdwardElgar.———.1999.Endogenousgrowthandnaturalresourcescarcity.EnvironmentalandResourceEconomics14(1):51–74.Barbier,E.B.,andT.Homer-Dixon.1999.Resourcescarcityandinnovation:Canpoorcountriesattainendogenousgrowth?Ambio28(2):14–147.Cropper,M.,andC.Griffiths.1994.Theinteractionofpopulationgrowthandenvironmentalquality.AmericanEconomicReview84(2):250–54.Dasgupta,P.1982.Thecontrolofresources.Oxford:BasilBlackwell.Heath,J.,andH.Binswanger.1996.Naturalresourcedegradationeffectsofpov-ertyandpopulationgrowtharelargelypolicy-induced:ThecaseofColombia.EnvironmentandDevelopmentEconomics1(1):65–83.ˆadaMotta.1998.Market-basedinstru-Huber,R.M.,J.Ruitenbeek,andR.SeromentsforenvironmentalpolicymakinginLatinAmericaandtheCaribbean:Les-sonsfromelevencountries.WorldBankDiscussionPaperno.381.Washington,D.C.:WorldBank.Komen,M.H.C.,S.Gerking,andH.Folmer.1997.IncomeandenvironmentalR&D:EmpiricalevidencefromOECDcountries.EnvironmentandDevelopmentEconomics(SpecialissueonenvironmentalKuznetscurves.)2(4):505–15.Matsuyama,K.1992.Agriculturalproductivity,comparativeadvantage,andeco-nomicgrowth.JournalofEconomicTheory58:317–34.Panayotou,T.1995.Environmentaldegradationatdifferentstagesofeconomicdevelopment.InBeyondRio:TheenvironmentalcrisisandsustainablelivelihoodsintheThirdWorld,ed.I.AhmedandJ.A.Doeleman,171–87.London:Mac-millan.———.1997.DemystifyingtheenvironmentalKuznetscurve:TurningablackboxTheEnvironmentalRegimeinDevelopingCountries249intoapolicytool.EnvironmentandDevelopmentEconomics(SpecialissueonenvironmentalKuznetscurves.)2(4):465–84.Sachs,J.D.,andA.W.Warner.1995.Naturalresourceabundanceandeconomicgrowth.DevelopmentDiscussionPaperno.517a.Cambridge,Mass.:HarvardIn-stituteforInternationalDevelopment.Shafik,N.1994.Economicdevelopmentandenvironmentalquality:Aneconomet-ricanalysis.OxfordEconomicPapers46:757–73.Stern,D.,M.S.Common,andE.B.Barbier.1996.Economicgrowthandenviron-mentaldegradation:TheenvironmentalKuznetscurveandsustainabledevelop-ment.WorldDevelopment24(7):1151–60.UnitedNationsDevelopmentProgram(UNDP).1998.Humandevelopmentreport1998.Oxford:OxfordUniversityPress.WorldBank.1997.FiveyearsafterRio:Innovationsinenvironmentalpolicy.Wash-ington,D.C.:WorldBank.WorldResourcesInstitute(WRI).1996.Worldresources1996–97.Oxford:OxfordUniversityPress.