Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
After World War II, economic growth is considered as the ultimate remedy for poverty, but it is only since the 1990s that the notions of natural resources and ...
Typology: Summaries
1 / 104
This page cannot be seen from the preview
Don't miss anything!
2006
Laura Gariup
To my supervisor Professor Peter Egger I express my deepest gratitude for all the wonderful support, professional as well as human, he gave me and because he left me the freedom in continuing to do research on a topic which I am extremely interested in. If these four difficult years can be crowned with the present dissertation, that is also because Professor Sven Rady, from the beginning to the end, has always encouraged and helped me and he has given me precious teachings which I will never forget. For all of that I thank him. I want to thank Professor Marco Runkel because he was one of the first persons who stimulated me to persevere in my work and found always time to listen to my research ideas. It is also especially thanks to him that I had such an enrichment and wonderful experience as that of being a teaching assistant at the chair of Professor Bernd Huber. For another unforgettable experience I thank Professor Sjak Smulders who made my three months stay at the Economic Department of Tilburg University possible. I extremely benefited from his comments and the stimulating environment. For all his engagement I am very grateful to Professor Gerhard Illing. The mathematical part of chapter 4 is based upon derivations in work by Pro- fessor Georg Schl¨uchtermann. I gratefully acknowledge his assistance with the ex- position and his kind help in preparing the draft. For the precious help with all the administrative questions along these years I am thankful to Ingeborg Buchmayr and to Dirk Roesing with all the technical ones.
The present work is the result of my interest in two themes: poverty and environ- ment. Scarcity, which is in fact the essential economic problem in all the history of economic thought, is inevitably related to the finiteness of the natural environ- ment. And it is not a coincidence that ”eco”-nomics and ”eco”-logy have the same Greek root ”oikos”, meaning household. After World War II, economic growth is considered as the ultimate remedy for poverty, but it is only since the 1990s that the notions of natural resources and environmental economics systematically enter the theory of economic growth to model sustainable development, which recognizes the value of the environmental services for the growth process. The dissertation is organized in two parts. The first one comprises the present chapter 1 ”Introduction” and chapter 2 ”Economy and environment joined together” and provides an overview of key notions for a better understanding of the second part, which presents new theoretical applications. Explicitly the second part ana- lyzes different aspects of the sustainability problem that are not already captured by the existing growth literature: in chapter 3, the non-constancy of the regenerative capacity of the environment; in chapter 4, the connection between use and depletion of renewable resources to address the problem of biodiversity loss and in chapter 5
Introduction 4
scientific research. In an economic model this implies inserting an environmental indicator variable, which will be called natural knowledge, not only into the produc- tion function of the final good but also into the production function of the standard technological sector. This model specification, in addition to giving a new explana- tory variable for the growth process, eliminates the presence of scale effects and the recourse to knife edge assumptions about the returns to scale in the produced factors of production. Here, as well as in the previous two chapters, the final goal of the analysis is to conjecture whether the model predicts sustainable growth, and under which assumptions. Each chapter of the second part is therefore a self-contained paper which can be read independently of the others, although the chosen sequence is not casual. It represents an evolution not only in the results of the models (from ones without sustainable development to ones with sustainable development) but also in the focus of the environmental analysis (from the particular role of the regenerative capacity of nature in the regeneration function, to the general one of nature as basis for scientific advancement).
1.2 The sustainability issue
It was during the 1970s that the new concept of economic sustainability entered the international political agenda. At that time politicians and researchers recog- nized that the environment plays an important role for the maintenance of economic growth. Nevertheless note that this consciousness was already present in classical economics two centuries before. For all classical economists the central question of research was what determined national wealth and its growth (Perman et al. (2003)), and natural resources were important explanatory variables, as well for Thomas Malthus in his ”Essay on the Principle of Population” (1798), as for David Ricardo in his ”Principles of Political Economy and Taxation” (1817). In the 1970s the connection between natural environment and economic growth returned to the center of attention for many reasons, most important the energy
Introduction 5
crisis, environmental catastrophes and discouraging scientific publications, which produced a lot of debate.^1 That new sensibility for the relationship between nature and the economic world flowed into the United Nations Conference on the Human Environment in 1972 which was the first of a long series of international confer- ences about the role of the natural environment in the economic development. The successive decades, in fact, are characterized by an increasing awareness of the role of the natural environment and therefore for its preservation, which is testified by all international conventions, programmes, conferences, publications that followed, some of them listed in the appendix to this introduction.^2 But it was only in 1987 that the concept of sustainable development was for- malized. In that year the final report of the World Commission on Environment and Development ”Our Common Future” (WCED (1987)) was published.^3 It states that ”environment and development are not separate challenges: they are inex- orably linked” and ”attempts to maintain social and ecological stability through old approaches to development and environmental protection will increase instabil- ity.” Therefore the new concept of sustainable development was presented, which is development that ”seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future.” In the report this new concept is absolutely not associated with reduction of the economic activities, instead: ”Far from requiring the cessation of economic growth, it recognizes that the problems of poverty and underdevelopment cannot be solved unless we have a new era of growth in which developing countries play a large role and reap large benefits.” And further ”The medium term prospects for industrial countries are growth of 3-4 per cent, the minimum that international financial institutions consider necessary if these coun- tries are going to play a part in expanding the world economy. Such growth rates could be environmentally sustainable if industrialized nations can continue the re- (^1) The Costs of Economic Growth, Mishan (1967); The Limits to Growth, Meadows et al. (1972). (^2) For a detailed historical reconstruction see UNEP (2002). (^3) Both the Commission and the report are also called Brundtland after the chairperson of the commission, Gro Harlem Brundtland. She was both Minister of the Environment and Prime Minister of Norway.
Introduction 7
1.3 Environmental facts
For the pursuit of reliable information about the state of the environment and its evolution along the years, the United Nation Environment Programme (UNEP) started the Global Environmental Outlook (GEO) project in 1995. The first report, GEO-1 was published in 1997, the second in 2000 and the third and so far last, GEO- 3 in 2002.^4 Since 2003, due to an increased request of updated information, also an annual report was prepared, the last one is the GEO Year Book 2006. There are eight macro indicators under observation: atmosphere, disasters caused by natural hazards, forests, biodiversity, coastal and marine areas, freshwater, urban areas, global environmental governance, (UNEP (2002)). The macro indicator ”atmosphere” comprises several sub-indicators: the energy use per unit of GDP which is decreasing and indicates therefore an improvement in the energy use, the renewable energy supply index which presents a small increase only for the wind energy, the total carbon dioxide emissions which are increasing especially for the Asia and Pacific regions, the mountain glacier mass balance which is steadily decreasing indicating an accelerating global warming, the consumption of chlorofluoro- and hydrochlorofluoro carbons and methyl bromide, substances which are responsible for the stratospheric ozone depletion. Thanks to the Vienna Con- vention and the Montreal Protocol their use is decreasing. Deforestation is continuing at a high rate for the need of the agricultural sector, the surface of protected areas to maintain biological diversity is staying constant and the Red List Index for birds, which indicates the extinction’s risk of species, is steadily worsening. The levels of Biological Oxygen Demand in freshwater, which indicates water contamination, is increasing in Africa and Latin America and the Caribbean. But as a signal for environmental commitment the number of ratifica- tions of the major multilateral environmental agreements (indicated with MEA in the appendix to this introduction) is increasing. (^4) The new GEO-4 is planned to be published between March and August 2007.
Introduction 8
1.4 Appendix 1
1972 UNESCO Convention Concerning the Protection of the World Cultural and Natural Heritage (World Heritage), MEA
1973 Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), MEA
1975 Great Barrier Reef Marine Park declared in Australia
1977 United Nations Conference on Desertification, Nairobi, Kenya
1979 First World Climate Conference, Geneva, Switzerland; Convention on the Conservation of Migratory Species of Wild Animals (CMS), MEA
1980 World Climate Programme established; ”World Conservation Strategy” launched by IUCN, UNEP and WWF; Beginning of the International Decade for Drinking Water and Sanitation
1982 United Nations Convention on the Law of the Sea (UNCLOS), MEA; United Nations General Assembly adopts the World Charter for Nature
1984 World Industry Conference on Environmental Management
1985 Vienna Convention for the Protection of the Ozone Layer (Ozone), MEA; International Conference on the Assessment of the Role of Carbon Dioxide and other Greenhouse Gases, Villach, Austria
1986 International Whaling Commission imposes a moratorium on commercial whaling
1987 Montreal Protocol on Substances that deplete the Ozone Layer adopted; ”Our Common Future” published
Introduction 10
2000 Millenium Summit, New York, United States; World Water Forum, The Hague
2001 Stockholm Convention on Persistent Organic Pollutants (POPs), MEA
2002 World Summit on Sustainable Development, Johannesburg, South Africa
As indicated in the previous chapter, to study the sustainability issue the natural environment has to be incorporated into the functional specifications of an optimal growth model. An almost complete and standard model could be constructed with
Economy and environment joined together 13
a positive role (opposite to the negative one that it would have in respect to the life support service). Their interpretation about the flow of pollution is that if it is possible to pollute more, then it is also possible to produce more. The stocks of resources SR, SN R are combined to form the maximal environmental quality and the loss in that maximal quality, called E, is introduced into the utility function. So, considering that the population is constant, the model is reduced to only three state variables making it possible to find an analytical solution.
2.2 The basic model
The first model which describes an interaction between the economic and the eco- logical systems is that of Dasgupta and Heal (1974). The production function of output Y , which is increasing, strictly concave, twice differentiable and homogenous of degree 1, is described by Yt = Y (Kt, RN R,t).
Capital accumulation follows the rule
K˙t = Y (Kt, RN R,t) − Ct
where Ct represents consumption. The change in the resource stock is described by
S˙N R,t = −RN R,t
and the utilitarian social welfare function reads
W =
t∫=∞
t=
U (Ct)e−ρtdt
where UC > 0 , UCC < 0. The corresponding current-value Hamiltonian is
H = U (Ct) + λ 1 ,t[Y (Kt, RN R,t) − Ct] − λ 2 ,tRN R,t,
Economy and environment joined together 14
and the necessary condition with respect to the control variables Ct and RN R,t and with respect to the state variables Kt and SN R,t are
UC,t = λ 1 ,t (2.1) λ 1 ,tYRN R,t = λ 2 ,t (2.2) λ˙ 2 ,t = ρλ 2 ,t (2.3) λ˙ 1 ,t = ρλ 1 ,t − YKt λ 1 ,t. (2.4) Equations (2.1) and (2.2) describe the static efficiency conditions. The former states that the marginal net benefit of one unit of output either used for consumption or for increases in the capital stock must be equal. The latter condition implies that the marginal value of the resource stock must be equal to the value of the marginal product of the resource. The other two equations instead represent the dynamic efficiency conditions. Equation (2.3) is known as the Hotelling rule and assures that the growth rate of the shadow price of the resources is equal to the utility discount rate. The same happens for the other asset of this economy in equation (2.4). It guarantees in fact that capital appreciation (the growth rate of the shadow price of capital) plus marginal productivity of capital is equal to the discount rate. Another way to see that would be to differentiate equation (2.2) with respect to time and substituting the value with equation (2.3) and (2.4). This operation leads to YKt = Y˙RN R,t YRN R,t which states a no-arbitrage condition of equality among rates of return. Then differentiating equation (2.1) with respect to time and inserting equation (2.4), the growth rate of consumption is found:
gCt =^1 η (YRN R,t − ρ)
where η is the elasticity of marginal utility, −UCC,t UC,tC t. With η being positive, whether consumption is growing, decreasing or stays constant, depends on the difference be- tween the marginal productivity of capital and the rate of time preference. But
