The Routledge Handbook of Environmental Economics in Asia

Shunsuke Managi

• Publisher: Routledge
• Year: 2015
• Print ISBN:
  9780415656450
• eBook ISBN:
  9781317597865
• Topic: Economics
• Subtopic: International Business
• Index: Economics

Problems of climate change, biodiversity and air pollution are clearly growing globally, but more particularly in Asia because of its economic importance and richness in nature. The increasing interest in environmental and resource economics applied in regions of Asia will make this book an outstanding resource to the existing literature, particularly in the fields of environmental and resource economics and the integration of applied content in traditional and agricultural development.

At present there is no single handbook or text on the state of current knowledge in environmental economics in Asia or one which offers a comprehensive guide to students and academics on the subjects of environmental economics research. This book will help to fill the gap in the existing literature.

1
Environment and Growth¹

Ryo Horii and Masako Ikefuji

Keywords: Environmental Kuznets Curve, Limits to Growth, Poverty-Environment Trap, Sustainability, Natural Disasters

1. Introduction

One of the most important and challenging questions for economists has been how to harmonize economic growth with the natural world. Since the Industrial Revolution, the growth rate of income per capita has been fairly stable in the United States. As shown in Figure 1.1, the measured per capita real GDP in the U.S. has been expanding exponentially, with its growth rate after the mid-19th century being around 2 percent. Figure 1.1 also shows that a number of Asian countries are in the process of catching up to the U.S. income level. Although they differ in the timing of when modern economic growth took off (e.g., Japan’s modern growth started relatively earlier, while China’s rapid growth is a much more recent phenomenon), their growth rates were typically higher than the U.S. after the second half of the 20th century. As long as this trend continues, the per capita income of successful countries will converge to the exponentially expanding U.S. per capita GDP level.

However, given that the world’s economic growth means the exponential expansion of output, especially if it requires ever increasing inputs of natural resources, it is obvious that this process cannot be continued for a very long time. This was the theme investigated by Meadows et al. (1972) under the title of the “Limits to Growth,” which subsequently led to a large body of literature that examined the possibility of economic growth under resource scarcity (seminal studies include Dasgupta and Heal, 1974; Smith, 1974; Stiglitz, 1974; see also a survey by Kraut-kraemer, 1998).

In addition to resource scarcity, the pollution that accompanies the production or use of particular kinds of inputs poses another constraint for economic growth. Although the literature on pollution and growth has been largely disjointed from that on resource scarcity,² the fundamental root of the problem is the same: the finiteness of the natural environment. Suppose that the aggregate production function has constant returns to scale and that all inputs are reproducible or non-exhaustible. In such a setting, long-term growth typically is achieved by a homothetic expansion of all inputs and outputs.³ However, if the production or use of some types of inputs involves pollution, such an expansion will result in an increasingly deteriorating environment.Given that nature itself cannot be expanded along with other inputs, the intensity of pollution (i.e., the ratio of pollution to environmental capacity) will increase with the growing production. The deteriorated environment in turn makes sustained economic growth difficult for a number of reasons, such as health problems and frequent natural disasters caused by global warming. In the paper “Are there limits to growth?,” Stokey (1998) considered this type of problem using an AK growth model with pollution and showed that it is not optimal to pursue sustained growth as long as the technology level is constant.

Figure 1.1 Long-term evolution of per capita GDP in the U.S. and Asian countries (in 1990 international dollars)

Data source: Bolt and van Zanden (2013).

In this chapter, we explain the implications of the interrelation between the environment and economic growth. In particular, we focus on two issues. The first is the feasibility of economic development in stagnant poor countries that are suffering from both low income and environmental degradation. Second, at the global scale, we consider the sustainability of world economic growth in the future. While these two issues have so far been treated in two separate bodies of literature, we show that the key to understanding both issues is the same: the mutual causality between the environment and economic growth. After intuitively explaining how this interaction works in the next section, we introduce two formal models that focus on the two issues in Sections 3 and 4.

2. Mutual causality between the environment and economic growth

As we discussed in the introduction, we will inevitably face the “limits to growth” problem if the environment continues degrading as the economy develops. The consequences of “limits to growth” are illustrated in Figure 1.2, which depicts the mutual relationship between pollution and the income level in one phase diagram. In the figure, the

curve reflects the causality from pollution to long-term income: for a given intensity of pollution P_t, the output can grow up to the

curve in the long run.⁴ The downward slope of this curve means that the potential for economic growth is adversely affected by environmental degradation. For example, when air pollution harms human health (WHO, 2006), it not only lowers the productivity of workers but also reduces life expectancy and, hence, the return on education, which in turn lowers the incentives for parents to provide their children with higher education. Without sufficient educated workers, (foreign) firms with advanced technologies will be reluctant to invest in such regions. These considerations imply that higher pollution (i.e., environmental degradation) will adversely affect long-term income.

Figure 1.2 The relationship between income and pollution

What, then, determines environmental quality? We may think of economic growth as a determinant of pollution. At the initial stage of economic growth, the scale of production is small, and, thus, both income and pollution would be small. In the figure, this means that the economy starts from a point near the origin. Then, as the economy develops, the scale of production increases. As long as the economy operates under the same technology and the same relative factor prices, the pollution P would increase proportionally with output. In the figure, this means that the economy moves to the upper right direction and will eventually reach the

curve, beyond which the economy cannot grow (denoted by path a).

While this seems a pessimistic result, in reality the technology level is not constant but improves as income grows. If improved technologies cause less pollution for a given amount of production, economic growth could mitigate th...

Table of contents

• Cover
• Title
• Copyright
• CONTENTS
• List of tables
• List of figures
• List of contributors
• Introduction
• 1 Environment and growth
• 2 Economic analysis of zero-emissions stabilization
• 3 The environmental Kuznets curve in Asia
• 4 Index decomposition analysis for tracking energy efficiency trends
• 5 A cross-country decomposition analysis of greenhouse gas emissions in Asian countries
• 6 Environmental taxes: practice
• 7 Energy and climate change
• 8 Theory of emissions trading and taxation
• 9 Emissions trading in practice: lessons learnt from the European emission trading scheme
• 10 Trade and the environment
• 11 The effect of extended producer responsibility on the international trade of waste
• 12 Fisheries management in Asia
• 13 Non-renewable resources in Asian economies: perspectives of availability, applicability, acceptability and affordability
• 14 Measuring sustainable development in Asia
• 15 Valuation of environmental benefits in Asian countries
• 16 Impact of agricultural chemicals on the environment and human health in Asia: are there solutions?
• 17 Benefit transfer of nature conservation values in Asia and Oceania based on meta-analysis: data heterogeneity and reliability issues
• 18 Effect of the announcement of conservation area and financial targets on charitable giving for forest conservation: a natural field experiment study in East Asia
• 19 Coastal development, coral reefs and marine life in Asia: tourism’s double-edged sword
• 20 An assessment of biodiversity offsets and mitigation actions: case studies on mining, energy and paper and pulp sectors in India
• 21 Technological change and the environment
• 22 Productivity, institutions and climate change: lessons for Asian countries
• 23 Determining future environmental value: empirical analysis of discounting over time and distance
• 24 Inequality and the environment
• 25 Voluntary standards and determinants: analysis of ISO 14001 certification
• 26 Japanese domestic environmental policy: with a focus on climate change and air pollution policy
• 27 Programs, prices and policies toward energy conservation and environmental quality in China
• 28 Measuring embodied emissions flows for the interdependent economies within China
• 29 Material flow accounting of the UK: linking UK consumption to global impacts with an example of imports from China
• 30 Energy and environmental policy in Korea
• 31 Environmental and resource policy in India
• Index