Chapter 10
The Environment and Development
Key Concepts
Section 10.1 discusses seven basic issues related to the environment and economic development.
Environmental issues are closely connected with many of the topics discussed in previous chapters.
·Economics and the environment: The issues inherent in considering the environment while analyzing
development are introduced. It is important to recognize that environmental costs affect development
even if they are excluded from traditional indicators of economic development.
Sustainable development and environmental accounting: The concept of sustainable development is
introduced, and defined broadly as when the needs of the present generation are met without compromising
the needs of future generations. Environmental accounting is a method of incorporating environmental
decay into national income accounts.
·Population, resources, and the environment: The consequences for the environment of rapidly growing
populations are mentioned, some of which were discussed in Chapter 6.
·Poverty and the environment: Environmental destruction is frequently a symptom of poverty.
·Growth versus the environment: It is possible that there may be a tradeoff between the two and the
Environmental Kuznets Curve is introduced.
·Rural development and the environment: Sustainable methods of farming are mentioned.
·Urban development and the environment: Urban pollution problems are discussed.
·The global environment and economy: Many environmental problems are global in nature, and hence
present special challenges.
Nature and Pace of Greenhouse gas induced climate change: Both developed and developing countries
will need to play an important role in limiting global warming particularly as it’s pace hastens.
The next section highlights the promises and the limitations of natural resource based livelihoods such as
agriculture, fishing and forestry.
Persistent rural poverty is shown to be the root cause of many of the environmental problems in less
developed countries, which include deforestation, soil erosion, and ground water contamination. The
principal health and productivity consequences of environmental damage are summarized.
Two hypothetical examples of two villages, one in Africa and one in South America, are presented to
clarify the relationship between rural poverty and environmental degradation.
Section 10.2 on Global warming and Climate change examines the scope of the problem of climate change
on developing nations, particularly the poor, and identifies the most vulnerable zones across the world:
Sub-Saharan Africa (drought), Asian megadeltas (flooding), small islands and the arctic. In addition, weather
related problems in South Asia and Latin America are also discussed. The cost of these direct and indirect
environmental catastrophes will be primarily borne by the poor as they directly depend on environmental
resources for their livelihood and are impacted by adverse health conditions and poor/inadequate housing
and sanitation that can be affected by climate change. Strategies to mitigate the progress of global warming
and policy adaptations to help the “poor” are also discussed. Box 10.1 presents ways that African farmers
have adapted to climate change in order to continue their way of living. Section 10.3 on economic models
of the environment includes a definition of the optimal allocation of resources, and discusses different types of
market failure that can lead to inefficient resource allocation. Topics include the characteristics of perfect
property rights markets, externality and common property resource problems, and public good and free
rider problems. Some limitations of each of these frameworks of analysis, particularly for specific
developing country situations, are mentioned.
Section 10.4 on urban development and the environment contains some interesting descriptions of the severity
of urban pollution in developing countries and its very severe health impacts. An analysis of some of the
different types of pollution control policies is presented. The negative impact of severe environmental
degradation on economic growth is described and it is suggested that in many cases pollution control can
have a positive effect on growth and development.
Section 10.5 looks at the costs of rainforest destruction. Land cleared is relatively infertile and soon
abandoned. It also presents concerns in that rainforests absorb carbon dioxide from the atmosphere.
Section 10.6 discusses options for policy reform. These are divided into what developing and developed
countries can do. The developing countries can practice more efficient resource pricing, encourage
community involvement, clarifying property rights and resource ownership, improving conditions for the
poor, raising the economic status of women, and adopting policies that both lower current industrial
pollution and adapt to future climate change. The developed countries can alter their trade practices, offer
debt relief including debt-for-nature swaps, increase aid levels, assist with research and development on
clean technologies appropriate for developing countries, curtail their own emissions, and reduce demand
for environmentally harmful products.
The chapter concludes with a case study on Haiti and the Dominican Republic that examines their
economic development efforts and indicators and their treatment of the environment.
Lecture Suggestions
The role of the environment in economic development has received a tremendous amount of attention
recently. An overview of the issues can be given in one or two lectures, while a more detailed discussion
and analysis might require an additional one or two lectures. Coverage can be expected to vary depending
on the background of the students. Those who have had intermediate microeconomics will be able to
handle a more rigorous discussion of the economic models of the environment.
A good lecture theme is the (theoretical and empirical) finding of the close connection between poverty
and environmental degradation. Key themes include the following:
·The high fertility of the absolutely poor. Larger populations have the potential to cause greater
environmental damage.
·The short time horizon of the poor. When starvation is a possibility there is no finite discount rate.
Farmers sometimes resort to eating next year’s seed corn to avoid starvation now, a metaphor for the
general problem.
·Land tenure insecurity of the poor. Even if survival is not at stake when one has insecure land tenure
rights, as the relatively poor often do, there is an incentive to treat land as short-term resource. Lack of
access to credit can have the same effect.
·The land distribution. Particularly in Latin America, unequal land distribution produces political
incentives to encourage poor farmers to establish inefficient rainforest settlements.
·The low status of women among the poor. Poverty is closely linked with women who often have roles
as guardians of natural resources, are responsible for (especially marginal) agriculture, and have an
ultimate responsibility for fertility.
·Poorly defined or nonexistent property nights.
·Dependence of the poor on natural resource based activities for their livelihoods.
It is important to spend some time discussing why environmental problems exist. This ties in nicely with
the meaning of development, which includes providing people with an expanded set of options. Key topics
include the incentives people face, the property rights system, and the difference between private and
social costs and benefits. The tragedy of the commons may be discussed in terms of possibilities for a
cooperative game solution among participants, where common holdings can improve efficiency given the
existence of returns to scale. (See the discussion of common property resources in section 10.3 page 514).
The relationship between growth and environmental quality can be discussed in more detail, both theoretically
and empirically. Growth and environmental quality can be both complements and substitutes. Production
possibility curves can be useful, and short run and long run tradeoffs can be highlighted.
The topic of Global warming and Climate change and its impact on developing nations, particularly the
poor, can be discussed along with the strategies that need to be pursued to impede the pace of global
warming and climate change.
The close connection between the need to service the country’s external debt and environmental degradation
can be stressed either now or in connection with Chapter 13. Among the many implications of the debt
crisis is inability to afford to import cleaner technologies, the discount rate is likely to be very high, and a
shift from emphasizing the diversification of manufacturing to intensive natural resource extraction may
be encouraged. Natural resource extraction is often worse in terms of total environmental impact than
industry, especially when it degrades rainforests.
The deforestation of the Brazilian Amazon rainforest illustrates many of the points in the text. Some
important issues to note:
·Conflicts between short and long term development goals.
·Nonrenewable resource extraction with little thought of the resulting negative externalities and resource
extraction which often benefits from ill-conceived subsidies for grandiose showcase development
projects and often lacks economic justification, but supported by development agencies.
·The encouragement of low-income farmers to move to the edge of the Amazonian rain forest as a
politically inexpensive alternative to land reform.
·The problem of perverse government incentives, such as awarding land titles to settlers on the basis of
forest area cleared, which provided incentives for rainforest burning even when no economic use was
planned; also tax breaks given for using Amazon land for ranches, which led the wealthy to develop
the region to save taxes rather than on the basis of economic merits (cattle ranching activities for which
there was a negative real rate of return, before the value of ecological damage was even considered,
became viable to investors on tax-saving grounds alone).
A discussion of environmental accounting, an extension of social accounting, can be interest. Two good
references are:
1. Robert Repetto et al. Wasting Assets, Natural Resources in the National Income Accounts. World
Resources Institute.
2. Wouter Van Dieren, editor. Taking Nature Into Account: A Report to the Club of Rome. Copernicus,
Springer-Verlag New York 1995.
Two additional reports that include both a discussion and some very interesting statistics are:
World Resource Institute, World Resources 2002–2004: Decision for the Earth: Balance, Voice and Power,
available at: governance.wri.org. Chapter 1 of the report is a useful summary of the importance of
governance.
World Bank, World Development Report 2003, Sustainable Development in a Dynamic World, available
at: econ.worldbank.org/wdr/. Chapter 2 defines and operationalizes the concept of sustainability and
chapter 3 discusses the crucial role of institutions.
Five excellent general references on environmental issues are:
1. Lester Brown. Eco-Economy, W.W. Norton and Co. 2001.
2. Celso Furtado. The Myth of Economic Development and the Future of the Third World,
Cambridge University Press, 1974.
3. David Montgomery. Dirt: The Erosion of Civilizations. University of California Press, 2007.
4. Diana Muir. Reflections on Bulloughs Pond, UPNE, 2002.
5. Sandra Postel. Pillars of Sand: Can the Irrigation Miracle Last? W.W. Norton and Co. 1999.
Discussion Topics
·Select some specific environmental problems in one or two developing countries and discuss the pros
and cons of possible solutions in class. You may choose to have students do some background reading
and/or research first.
Discuss possible alternative measures of the quality of life. What indicators are important?
·Discuss the role and responsibilities of Developing and Developed countries with respect to climate
change and its impact on the economy and the lives of people.
Sample Questions
Short Answer
1. Discuss the relationship between poverty, growth and the environment.
Answer: Discussed in the chapter.
2. Recurrent flooding in Bangladesh is causing the land area of the country to shrink. In what ways
might environmental mismanagement play a role in explaining this phenomenon?
Answer: Depends on lecture coverage.
3. Why might it be in the direct economic interest of the United States to finance rain forest conservation
programs in the Amazon?
Answer: Answers may include global warming effects, which may lower the productivity of the
4. What is the relationship between debt, falling commodity prices and rainforest degradation?
Answer: Discussed in the chapter.
5. Provide a short definition of sustainable development.
Answer: Meeting the needs of the present generation without compromising the needs of future
6. Describe the basic issues involved in setting up a system of national accounts that includes the value
of environmental capital and its loss.
Answer: Detailed in the text.
7. In what way is better protection of the environment a possible result of successful development?
Answer: Successful development brings the poor above the poverty line; the poorest 1 billion
8. Describe the effect of the loss of biodiversity on productivity and health.
Answer: Reduced adaptability of ecosystem; loss of new drugs.
9. Explain what developed countries can do to respond constructively to the environmental damage
being done in developing countries.
Answer: Discussed at the end of the chapter; this may also depend on lecture coverage.
10. Describe the costs of deforestation.
Answer: Flooding, leading to disease and death; loss of sustainable logging potential, erosion
11.Describe the costs of water pollution.
Answer: Disease and death, poor household hygiene, declining fisheries, time and costs of
12. Compare and contrast the path of economic development for Haiti and the Dominican Republic?
How did differences in in earlier institutions and the policies pursued by the two nations play a role
in determining the development related outcomes?
Answer: Detailed in the case study at the end of chapter. (You might also refer to the following:
http://www.time.com/time/world/article/0,8599,1953959,00.html)13. How will global warming
and climate change adversely impact the “poor,” particularly in developing nations?
Answer: The poor are heavily dependent on natural resources, particularly rain fed agriculture.
14. What are some of the strategies that have been proposed to mitigate global warming at a macro level?
Answer: These include, capping emissions, development of carbon markets, taxes on carbon, and
Multiple Choice
1. A major cause of environmental degradation in developing countries is
(a) population growth.
(b) rural poverty.
(c) rapid urbanization.
(d) all of the above.
2. Sustainable development means
(a) emphasizing the role of the market.
(b) emphasizing the role of government.
(c) meeting the present generation’s needs without compromising the needs of future generations.
(d) maintaining output growth at a constant rate.
3. Which of the following environmental problems are largely caused by persistent poverty?
(a) Deforestation.
(b) Soil erosion.
(c) Ground water contamination.
(d) All of the above.
4. Which of the following conditions is violated if there is a free rider problem?
(a) universality
(b) exclusivity
(c) transferability
(d) enforceability
5. A major cause of environmental degradation in developing countries is
(a) debt for nature swaps.
(b) poverty.
(c) a lack of public transportation.
(d) land reform.
6. The “cost of rainforest preservation” can be lowered for developing countries by
(a) the development of alternative rainforest products.
(b) research on agriculture in rainforest soils.
(c) encouraging rainforest settlement of the poor.
(d) subsidies for activities like cattle raising.
7. Debt-for-nature swaps are most generally
(a) beneficial only to the developing country.
(b) beneficial only to the developed country.
(c) beneficial only to the bank which can write off the debt.
(d) beneficial to all countries.
8. A resource that is publicly owned and allocated under a system of unrestricted access is known as
(a) a socialist resource.
(b) a collective resource.
(c) a common property resource.
(d) a transferable resource.
9. The portion of a country’s overall assets that is directly related to the environment, such as forests and
soil quality, is known as
(a) environmental capital.
(b) debt for nature swaps.
(c) protected areas.
(d) common property assets.
10. The free rider problem is a situation in which
(a) effluents such as CFCs combine with ozone and decrease concentrations of that protective chemical.
(b) one agent secures benefits that others pay for.
(c) there are excessive subsidies given to polluting buses or other forms of mass transit.
(d) perfect property rights exist.
11.International resources shared by all countries such as oceans and air are known as
(a) global commons.
(b) free rider problems.
(c) nonrenewable resources.
(d) cooperative resources.
12. The annual income that can be consumed without diminishing the total capital assets of a nation is
(a) purchasing power parity income.
(b) sustainable national income.
(c) environmental capital stock.
(d) per capita income.
13. An example of a biomass fuel is
(a) coal.
(b) nuclear fuel.
(c) manure.
(d) oil.
14. Which of the following conditions does not characterize perfect property rights markets?
(a) universality
(b) exclusivity
(c) sustainability.
(d) enforceability.
15. In what way do developing countries make the largest contribution to the global concentrations of
greenhouse gases?
(a) vehicle emissions.
(b) deforestation.
(c) mining.
(d) irrigation.