Economic Development and Environmental Quality: An Econometric Analysis Author(s): Nemat Shafik Reviewed work(s): Source: Oxford Economic

Papers, New Series, Vol. 46, Special Issue on Environmental Economics (Oct., 1994), pp. 757-773 Published by: Oxford University Press Stable URL: http://www.jstor.org/stable/2663498 . Accessed: 16/02/2012 20:14
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Oxford EconomicPapers 46 (1994), 757-773

ECONOMIC DEVELOPMENT AND ENVIRONMENTAL QUALITY: AN ECONOMETRIC ANALYSIS

By NEMAT SHAFIK The WorldBank, 1818 The H StreetNW, Washington, 20433, USA DC 1. Introduction
THE RELATIONSHIP betweeneconomic growthand environmental qualityhas been a source of greatcontroversy a verylong time.At one extreme for has been theviewthatgreater economicactivity inevitably leads to environmental degradationand ultimately possible economic and ecological collapse. At to theotherextreme theviewthatthoseenvironmental is problems worthsolving will be addressedmore or less automatically a consequence of economic as growth. The longevity passion of thisdebate has, in part,been a reflection and of the lack of substantialempiricalevidence on how environmental quality changes at different income levels. Compilation of such evidence has been constrained theabsence ofdata fora largenumberofcountries. by Whiledata remaina problem, situation muchimprovedand thispaper takes a first the is I stepat systematic analysisofwhatdata are available(see Appendix fordetails). A number of caveats are in order. The data on environmental quality are patchyat best,but are likelyto improveover timewithbetter monitoring. differences by and Comparability across countriesis affected definitional by inaccuraciesand unrepresentative measurement sites.At this stage of knowledge,thispaper has the modestobjectiveof openingup the empiricaldebate basis to a usinga relatively simplemodelingtechnique applied on a consistent large numberof environmental qualityindicators and countries. The relationship betweenincomeand thecosts and benefits associatedwith any given level of environmental quality is complex because it operates a and through numberof different channels,such as preferences, technology, thatoccurdepend economicstructure. typesofenvironmental The degradation on thecomposition output, of whichchangeswithincome.Some incomelevels are oftenassociated withincreasesin certainpollutingactivities such as the of development heavyindustry whereaseconomieswithlarge servicesectors less pollution.Thereis a view thatrising incomesimplythatthe may generate cost of environmental because the wages used to value degradationis greater the opportunity cost of illnessor workdays lost are higher. This would imply the increasesin marginalbenefits incomesrise.But the poor are often most as losses associated with exposed and vulnerableto the healthand productivity a degraded environment. There are some environmental problems where to thresholds like survivalare at stake. Here, the willingness pay to avert the and damage is close to infinity the level of per capita income only affects not thewillingness, pay. Withotherenvironmental capacity, to issues,most of
Press 1994 9() OxfordUniversity

758

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thecostsare external (such as transnational pollutionor global climate change) and the privatebenefits averting of damage are small. It is also necessary to considerthe intrinsic values of some natural resources.There is a general perceptionthat higherincomes enable the relativeluxuryof caring about But amenitiessuch as landscapes and biodiversity. many societieswithvery low incomes,such as tribalpeoples,place a veryhigh value on conservation (Davis 1992). Thus, it is not necessarily question of different a preferences betweenthe richand the poor, but rather one of different budgetconstraints. At a theoretical level,it is not possibleto predict how environmental quality willevolvewithchangesin percapitaincomes, wherepublicgoods particularly The questionis moretractable are involved. wherewe observesome empirically The evidencesuggests clear patterns. that,whilethereis no inevitable pattern of environmental transformation with respect to economic growth at an aggregatelevel, thereare clear relationships betweenspecificenvironmental indicators and percapita incomes.Whereenvironmental affects qualitydirectly humanwelfare, higher incomestendto be associatedwithless degradation. But where costsofenvironmental the damagecan be externalized, economicgrowth or tendsto resultin a steadydeterioration environmental quality. 2. Specification an empirical of model It is hypothesized thatthereare fourdeterminants environmental of qualityin such as climateand location;(ii) per capita any givencountry: endowment (i) income which reflects the structure production,urbanization,and conof of sumption patterns privategoods including those environmental goods and serviceswhich have the characteristics private goods and services;(iii) of such as technology whichare available to all countries but exogenousfactors change over time; and (iv) policies that reflect social decisions about the provisionof environmental public goods dependingon the sum of individual benefits relativeto the sum of individuals'willingness pay. The focus of to betweenenvironment thispaper is on the relationship qualityand per capita intoaccounttheseother income, taking determinants environmental of quality. 2.1. Endowment In the case of endowment, that location-specific characteristics affect environmental qualityat anygivenlevelofincomecan be accountedforbytheinclusion of fixed-effects allow each country have its own intercept regression to in that It estimates. is also possible to include dummiesthat take into account the of sites characteristics a specific cityor riverand the location of measurement vs urban vs suburban). (such as residential commercial, 2.2. Income Per capitaincomeservesto measuredirectly relationship the economic between the growthand environmental quality and measuresindirectly endogenous

N. SHAFIK

759

characteristics growth.Thus the impact of rising industrialization of and of urbanization middle-income at levelsand the growing importance services in highincomeeconomiesare typicalpatterns that are proxiedby per capita income.' 2.3. Technology For exogenousfactors suchas technology can affect that environmental quality a The disadvantage a timetrend of directly, timetrendcan be used as a proxy. is thatit also capturesotherexogenousfactors thatdisplaya trend. 2.4. Policy Measuringthedirectimpactofpolicy,is complicated thelack of data on a by Whileit is possibleto construct consistent basis fora largesampleofcountries. indicators macroeconomic of policies,such as the trade regime, indebtedness or investment mostfor rates,theseare not likelyto be the policiesthatmatter environmental quality. Meanwhile, those policies that are most likely to alterthe pattern environmental of degradation, such as regulations governing emissions, energy taxation, land use,do notlendthemselves suchaggregate or to in analysis.Therefore the case of policy,it is only possible to cautiouslyinfer where observea close associationbetween we certain types policiesand levels of of per capita income. 2.5. The empirical mnodel Indicatorsofenvironmental variablesin panel qualitywereused as dependent based on ordinary least squares estimates regressions using data fromup to 149 countries the period 1960-90.2The ultimate for sample size dependedon of theavailability data forthe relevant variables.The detailson data used are providedin Appendix1. The environmental qualityindicators analyzedare the lack of clean water,lack of urban sanitation,ambientlevels of suspended area matter(SPM), ambientsulfur oxides (SO2), change in forest particulate between1961-86,theannual rateof deforestation between1962-86,dissolved fecal coliforms rivers,4 in oxygenin rivers,3 municipalwaste per capita, and
' The inclusion of variables that directlymeasure urbanizationor industrialization would generatemulticollinearity would undermine objectiveof evaluatingboth the directand and the indirect effects growth. of See Holtz-Eakinand Seldon (1992) fora similarapproach in the case of carbon emissions. 2 Cross-section regressions werealso tried a number years, theresults for of but wereless robust. Because the numberof observationsand the countrycoverage varied widelyacross years,the specifications, coefficient estimates and significance levelsvaried among cross-section regressions and providemore forany givenyear.The panel results, have greater however, degreesof freedom consistent results. 3 Low levels of dissolvedoxygen, usuallycaused by human sewage or agro-industrial effluent, reducethe capacityof rivers supportaquatic life. to 4 High levelsof fecalcoliforms result fromuntreated humanwastesthatoften carrydisease.

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carbon emissionsper capita.5Six of theseindicators (water,sanitation, SPM, in and fecalcoliforms rivers) measurethe appropriately S02, dissolvedoxygen, For theremaining indicators qualityofa stockofnaturalresources. (deforestawasteand carbonemissions), reliabledata are not available on tion,municipal either size or the qualityof the stock.6For thesevariables, the changesin the flowthatcontribute degradation thestockare used as a proxymeasureof to of environmental quality. Threebasic modelsweretested log linear, and cubic-to explore quadratic, between incomeand each environmental theshape oftherelationship indicator Eit = oco+ al
lnyat

+ 02

3Fieit

(1) (2) (3)

+ 05Fi + eit

+ lnyat Eit= #0o f,B Eit= 00 + 0, In

yt +

#2(ln it)2+
1t)2

#3Tt +
it)3 +

+ fl4Fi eit
04T

02(ln

03(ln

whereEj, is an indicatorof environmental i qualityforcountry at timet, Y is F percapitaincome,T is a timetrend, is thefixed effect site-specific for factors, and e is a stochastic errorterm. Per capita incomewas defined purchasing in terms.7 variablesare in logarithms All unlessotherwise powerparity specified in the data appendix.Wherecityvariableswereused on the left-hand-side (in the case of local air pollutantslike SPM and S02), national income figures were used to proxy city incomes.8Interactivedummies for the city and measurement site were also included in the air pollution and riverquality regressions.9 3. Econometric results The panel regression results all the environmental for indicators reported are in Table 1 and graphicaldepictionsof the patterns environmental of change and percapitaincomeare presented Fig. 1 based on thecoefficient in estimates
' The choice of thesevariableswas largely determined data availability. by There are a number of otherenvironmental indicators, such as lead concentrations speciesloss, forwhichsufficient or data are not available to beginto analyzesystematically. 6 In the case of forests, thereare some data on global forest stocks,but the issue of qualityis complicated questionsofbiodiversity by associatedwithdifferent forest types. For municipal waste, there no data on totalstocksand a truemeasureofenvironmental are qualitywould have to take theefficiency disposalfacilities account.On carbonemissions, of into there no clearconsensus is on the optimalstock of thisgreenhouse gas. 7 The core modelwas also estimated usingconventional GDP measuresand theresults werenot substantially different, althoughthe PPP measureof incomedid tend to perform better. 8 National per capita income is a crude proxyfor urban income,but sufficient data are not available on income at the citylevel. The proxyused here assumes that the ratio of urban to nationalper capita incomeremainsstable.The use of nationalincomemay resultin a downward bias ofturning because urbanincomestendto be higher pointestimates thanthenationalaverage. See Seldon and Song (1992). 9 Citydummieswereincludedwhenair pollutiondata wereavailable formorethan one cityin any country. Site dummiesweredividedinto fourcategories-citycentralresidential, central city commercial, suburbanresidential, suburban and commercial. Cityand sitedummies wereinteractive based on the view that pollutionfromresidential and commercial sites across citiesmightvary depending the typesof industries, on local geography, and othersite-specific factors.

N. SHAFIK

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from panel regressions. results the The indicatethataccess to clean waterand urban sanitationare indicatorsthat clearlyimprovewith higherper capita does notadd considerable incomes. The additionofthequadraticor cubicterms the regressions. timetrend The explanatory powerto either wateror sanitation that, anygivenincome at is significantly negative all theregressions, in implying services thanin thepast. level,morepeople have access to waterand sanitation is The overallfit theequationsforclean waterand urbansanitation not high, of the This may reflect implying that variablesotherthan income also matter. because evenat very low levelsofincome, priority givento waterand sanitation, of thecritical impacton health. Not surprisingly, access to clean water and to adequate sanitationare solved by higherincomes.This environmental problemsthat are essentially and to a lesserextent sanitation, approximate reflects degreeto whichwater, the to privategoods. In the case of water,the privatebenefits provisionare high low relative to (survivalis at stake) and the social costs of provisionare fairly These characteristics watersupplyhave caused some to argue of the benefits. an problem.Environthataccess to clean wateris not truly 'environmental' from deriving externalities. mentalproblems not defined are hereas necessarily In thecase ofwatersupply, environmental concerns issuesstemfrom about the scarcity and pollution both of whichhave major consequencesfor human health,productivity, the ecosystem. and With urban sanitation,the private are benefits not as high as withwater,but the social benefits due to the are those relatedto health,associated with substantialexternalities, particularly poor urban sanitation. The case for deforestation more complex. The firstobstacle is the is indicators measurement deforestation. the case of otherenvironmental of In much wastesand carbonemissions), where flowmeasureswereused (municipal ofthedamage is relatively recent and flowsoverthepast 20-30 yearsare likely withthequalityofthestock.In thecase ofdeforestation, to be correlated some of the degradation, in occurredin the particularly higherincome countries, distant past for which data are not available. The annual variation in forests the in deforestation ratesis deceptive sincecountries thatdepletedtheir would appear to be doing distantpast and have slowed down more recently better than countries withsubstantial forest resourcesthathave onlyrecently area over a begun to draw down timberstocks.The change in total forest that in 25-year periodalso does not capturedeforestation occurred thedistant the concerning past. Moreover,thereare a numberof serious controversies data on deforestation a discussion, Allenand Barnes 1985) and thedata see (for are poor at capturing of differences between types forest. Recognizing important these problems, the disappointing resultsfor both the change in forestarea between1962-86 and the annual rate of deforestation between1961 and 1986 in Table 1 are not surprising. are in None of theincometerms significant any The is But one specification. best fit, relatively speaking, the quadraticform. can onlyconcludefrom problems per theseresults that,giventhemeasurement capita incomeappears to have verylittlebearingon the rate of deforestation.

(PPP) and indicators income Environment variables Dependent Lack ofsafewater Intercept* 71.36 (3.36) 62.87 (3.00) 16.97 (0.53) 169.10 (2.43) 167.53 (2.41) 87.35 (1.12) 3.49 (0.79) 0.64 (0.05) 15.57 (0.64) 2.99 (0.04) -9.74 (0.95) -41.42 (0.56) Income -0.48 (7.39) 1.59 (1.79) 19.27 (2.04) -0.57 (5.65) 1.07 (0.82) 27.37 (2.25) -0.02 (0.77) 0.65 (0.85) -5.34 (0.66) -0.87 (0.65) 3.33 (1.22) 16.04 (0.54) -0.18 (1.52) -1.46 (1.42) -11.55 (0.98) Incomesquared Incomecubed

TABLE 1

Tim

-0 -0.14 (2.34) -2.48 (1.99)

-0 0.10 (1.88)

-0

Lack of urbansanitation

-0.11 (1.26) -3.44 (2.24)

0.14 (2.18)

Annualdeforestation

-0.04 (0.88) 0.76 (0.70)

-0.04 (0.74)

Total deforestation

-0.23 (1.25) -1.91 (0.49)

0.07 (0.43)

in Dissolved oxygen rivers

0.08 (1.25) 1.34 (0.92)

-0.05 (0.86)

Fecal coliform rivers in Ambient SPM Ambient SO2

-1.87 (1.87) 9.64 (1.25) 256.38 (2.77) 008 (0.53) 4.64 (4.66) -8.09 (0.62) 0.17 (0.83) 6.81 (3.79) 37.20 (1.36)

-0.74 (1.50) - 31.47 (2.74)

1.27 (2.57)

-0.29 (4.62) 1.36 (0.80)

-0.06 (0.98)

-0.41 (3.72) -4.12 (1.24)

0.15 (1.11)

Municipalwasteper capita

2.41 (5.51) 11.02 (2.50) - 33.96 (0.88) -15.46 (5.27) -22.44 (7.60) 6.50 (1.56)

0.38 (7.69) -1.70 (1.60) 15.08 (1.05) 1.62 (137.12) 3.22 (22.02) -6.91 (6.48)

0.13 (1.96 -1.95 (1.10)

0.08 (1.17)

Carbonemissions capita per

-0.10 (11.02) 1.17 (8.80)

-0.05 (9.59)

-0

Note: Regressions without intercept an reported hereincludecityand site or riverdummieswhichallow each country h to parentheses below the coefficient estimates.

764
1 .o 100 OQ 0 E0
co

ECONOMIC

DEVELOPMENT

AND ENVIRONMENTAL C 100 ?0

QUALITY

Lack of safe water

-

Lack of urban sanitation

-1980 .*----- 1986

1975

1986

50 -

0 _ ~~~~~~~~~~0
-09 ;5 -a

cm~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~c 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~c
0aP

Jait

iome

900

capita income

CD

6.25

Annual deforestation
......

12 -6.15

1962

c1

c a E

6.05
00 0 Cn O5.95 -)a
5.575

100 2 1 C0 50 -

Total deforestation
1997
...... 1986

100

1000

income Percapita

10000 100000

100

1000

Percapita income

10000 10oooo

12

oxygen in rivers 1.solved caiaicoePrcpiaicm Per~~~~~~~ k

....1 8.

10
U) 0).Y

20
o'1

in Fecal coliform rivers

....1 8

8k

~~~~~~~~E

L~~~~~~~~~
100 10000 1000 Percapita income 100000 100 1000 10000 Percapita income

1odooo

matter Suspended particulate

o....1986

Ambient dioxide sulfur

co .....1986

120

- 1972

-1972

40
23. 40~J

100

1000 10000 Percapita income

100000

&) 100

10000 1000 Percapita income

100000

700

solid per Municipal waste capita ~

0
C

E
0cc

a)~~~~~~~~~~~~~~~~~~~~C
-1972

emission capita C Carbon per 2 e - -1962 .... 1986 i

~~~0.
Percapita income Percapita income

N. SHAFIK

765

the withotherattempts estimate causes ofdeforestato This is fairly consistent role for tion which findlittlerole for per capita incomes and a significant and use settlement timber (Allen and Barnes 1985;Johnson1991; agricultural World Bank 1991). The two measures of riverquality tend to worsen with risingper capita income.Dissolved oxygenseemsto be linearwitha negativeslope implying for river Growingeffluent a tendency worsening qualitywitheconomicgrowth. dissolved associatedwith industrialization playa rolein reducing may pollution at incomes.In thecase offecalcoliform, cubic modelfits the the oxygen higher thenimproves, and then that fecalcontentof riversworsens, best implying of deteriorates again at veryhigh income levels. The initialworsening fecal content,which occurs up to a per capita income level of about $1,375, is on and consequentpressures probablyassociated withgrowingurbanization are results whenurban sanitation services introsanitation. The improvement at duced.The increasein fecalcoliform highincomelevels,whichbeginsat an to incomelevel of $11,400,is more difficult explain.The cubic shape of fecal is The increasein fecalpollution content not an artifact thefunctional of form. whichoccursat incomesabove $11,500per capita is based on 38 observations in (Australia, Japan,and the United States). from sevenrivers threecountries high observations of held even aftersome extremely This cubic relationship in fecalcontent from Yodo river Japanweredroppedfrom sample.The the the in may reflect improvements water supply systems increasedfecal coliform wherepeople no longerdependdirectly rivers waterand therefore for may on be less concernedabout riverwaterquality.Some sample bias may existfor both measuresof waterqualitybecause onlythe most pollutedrivers may be in monitored highincomecountries. Because of thesecaveats,the resultsfor river waterqualitymustbe treatedwithcaution. Local air pollution follows a 'bell-shaped' curve. Suspended particulate is matter(SPM), whichcauses respiratory illness and mortality, largelythe resultof energyuse. The regressions SPM in Table 1 indicate that the for thatpollutionfrom particulates getsworse quadraticmodel fits best,implying and thenimproves. The as intensive, initially countries become more energy improvement beginsat a per capitaincomelevelof around $3,280.The middle of to partof Fig. 2 showschangesin theelasticity SPM withrespect percapita income.SPM is foundto be inelasticto changesin per capita income in the rangeof $570-$18,750.Below $570, a 1% increasein per capita incomewould lead to more than 1% increasein the SPM. Above $18,750a similarincrease would lead to morethan 1% declinein SPM. human health and contribute ecosystem to Sulphurdioxides,whichaffect the the are use, acidification, also largely productofenergy particularly burning a of fuelswith a high sulfurcontent.The resultsin Table 1 also confirm for oxides witha turning point of around $3,670 quadraticrelationship sulfur of per capita.The bottompart of Fig. 2 shows changesin the elasticity sulfur dioxide concentrations with respectto per capita income. Sulfurdioxide is inelastic changesin per capita incomelevelsin the rangeof $1,000-$12,240. to

766

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with to Elasticity fecalcoliform respect income of 7-

Z% .53
-10C

',U00A 1
E
lIlI 1000

-3-1.5 100

Income capita per (dollar, scale) log

10000

100000

1.5 1.0C 0.5 -

SPM with Elasticity ambient of respect income to

-1.0

2) .0
10.5-1.0 *-3 .5

100 100

1000 ~~~~10000 1000 ~~~10000 Income capita per log (dollar, scale)

100000 100000

FlsiG.t of enironmdentleatcte with ElsIcit2. Cambgesntslu Camintesulu dneniroxidena rsett wtoincome wlsiithiespc income

N. SHAFIK

767

Below $1,100 per capita, a 1% increasein income resultsin a more than 1% the dioxide.Similarly, same 1% increasein percapita sulfur in increase ambient incomeforan economywithincomeabove $12,240would lead to a morethan dioxideconcentrations. 1% declinein sulfur the In the case of local air pollution, patternseems to be one of an initial intensity and of qualityas industrialization energy deterioration environmental are as followedby an improvement cleanertechnologies used and increases, appears to have occurs.Technology, proxiedby the timetrend, fuelswitching played a favorablerole in makingimprovedlocal air qualitypossible at an In ambientair quality earlierstage of development. the case of particulates, dioxide tendsto declineby 5% by improves about 2% a year;ambientsulfur a year. of withtheonlyotherestimates thistype are These results broadlyconsistent done by Grossman and Krueger (1993) and Seldon and Song (1992) who betweenair pollutantsand income using panel data explorethe relationship of For two indicators local air pollution SO2 fora largesampleofcountries. and dark matter Grossman and Kruegerconclude that a cubic functional are thatthere onlytwocountries the Theynote,however, form provides bestfit. (the US and Canada) in theirsample with per capita incomes in excess of Thus formbecomes relevant. $16,000 wherethe cubic part of the functional per between positiverelationship theevidenceof a renewed theyconcludethat incomelevelsis relatively at and SO2 and darkmatter thehighest capitaincome 'U' weakerthantheinverted shape foundat lowerincomelevels.Theirturning thanthatof$3,670 higher pointforSO2 ofabout $5,000percapitais somewhat point in differences sample size, but theirturning foundhere and may reflect local withtheconclusionthatat middleincomes, is estimate broadlyconsistent betweenGrossmanand air pollutiontendsto rise.The only major difference wheretheyget herelies in particulates and Krueger'sfindings thosepresented found to in 'bell-shaped'relationship results contrast thesignificant conflicting and between particulates relationship declining a here.Theyfind monotonically a model generates model whiletheirfixed-effects incomein a random-effects for results Seldon and Song's empirical relationship. increasing monotonically but theytend to findhigherturning air pollutantsare also broadlysimilar, emissions use of points.This is probablya reflection thefactthatthey aggregate flowratherthan measuresof ambienturban air pollutionstocks,which are measureenvironmental moredirectly qualityand health used herebecause they turning thannationalincomes, Because urbanincomestendto be higher impact. based on urbanpollutionand nationalincomeare likelyto be pointestimates emissionsand nationalincome. thanthoseforaggregate higher thatunambiguously indicator Municipalwastepercapitais one environmental worksbest.Unlikeair The log linearspecification incomes. withrising worsens who stepsoutdoors,solid and affects everyone whichis generalized pollution, can isolatedlocalitiesand, ifdisposedof properly, wastecan be disposedof in on humanhealth.Because solid waste disposal have a relatively small impact harmless particuproblem, into can be transformed a localized and potentially

768

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larly in areas that are not densely populated or are low income communities, higher incomesare notassociatedwithreductions wastegeneration. in Carbon emissionsper capita,like solid waste,do not improvewithrising incomes because widespreadawarenessof the problemof climatechange is The log linear recentand because the costs are born externally. relatively has all specification virtually the explanatory power,althoughthe quadratic The turningpoint on the quadratic and cubic termsare also significant. occursat an incomelevelthatis well outsidethesamplerangeof specification per capita income.'0 The explanationforthe exponentialincreasein carbon incomesis thatit is a classicfree rider emissions capitawithrising per problem. Thereare no major local costs associatedwithcarbonemissions all thecosts in termsof climatechange are borne by the restof the world-and the local benefitsin the near term are small in most cases. Technology has not time trend,because no significant helped, evidenced by the insignificant exist.It is interesting notethatcarbon to incentives reducecarbonemissions to have emissionsper unitof capital stock have declinedover timeas countries But movedto cleanerburning fuelsand technologies. thismovement cleaner to about local,not global,pollutants fuels been motivated has largely concerns by (see Diwan and Shafik1992,foran analysis). 4. Changesin income, changesin environmental quality The elasticity each environmental of indicatorwithrespectto changesin per capita income are providedin Table 2. The elasticities are calculatedfor (E) incomegroups-low, middle, and high based on thecoefficient estimates three in of the best fitting form per capita incomereported Table 1 for functional Linear:E = a 1 Quadratic:E = 3,B 2/32In Y + Cubic: E = a, +
202

(4) (5) (6)

In Y+

302

In y2

The environmental variablescharacterized linearfunctional by forms safe urbansanitation, water, municipal waste,and carbon dioxideemissions-have constant elasticitiesover changes in income. Access to clean water and of that a sanitationhave elasticities -0.48 and -0.57 respectively, implying 1% increasein income resultsin about 0.5% more people in the population of servedby improvedfacilities. Municipal waste has an elasticity 0.38 with is respectto income. The greatestlinear income elasticity carbon dioxide emissionsper capita. A 1% increasein income resultsin 1.62% increasein line in Fig. 1. carbon dioxideemissions hencetheexponentially increasing different The elasticities the local air pollutants for followslightly patterns, bothare quadratic(Fig. 2). Particulates increaseat low incomes(with although of an elasticity 0.69),but beginto declineslowlyat middleincomelevels.Once
0 The turning pointforCO2 emissions, estimated Holtz-Eakinand Seldon (1992) of$35,000 by in 1985 dollarsis also veryhighand is treatedwithcaution by the authorsforsimilarreasons.

N. SHAFIK Environmental elasticities-income effects Low income Lack of safewater Lack of urbansanitation Annualdeforestation Total deforestation Dissolved oxygen Fecal coliform SPM Ambient Ambient SQ2 Municipalwasteper capita Carbon emissionper capita -0.48 -0.57 Middle income -0.48 -0.57
TABLE 2

769

High income -0.48 -0.57

4.08 0.74 1.17 0.38 1.62

-4.20 -0.03 0.04 0.38 1.62

-0.11 -0.70 -0.93 0.38 1.62

of Notes: elasticitiesenvironmental The indicators respect income calculated low, with to are for middle, and high incomes defined $900, as $3,500, $11,250 PPP dollars and in respectively. income These groups represent PPP percapita theaverage income equivalents theWorld of Bank's country classificationlow,middle of and high income countries. Average middle, high capita low, and per income levels usedto calculate are elasticities basedon thecoefficient estimates thebest of in fitting model Table1. - Indicates effects theright-hand variable theenvironmental the side on indicator notstatistically are of at the significant 5% level.

countries reachhighincomes, declineis rapid.Sulfur the dioxidesincreasewith to respect incomeat twicetherateofparticulates elasticity low incomes (the at is 1.23) and continueto rise,albeit more slowlyat middleincomes.At higher incomes, sulfur dioxideconcentrations declinemore quicklythan particulates. Thus theinverted shape forsulfur 'U' dioxidesis laterand morepeaked than forparticulates. but the Fecal coliform the only cubic shaped environmental is indicator, elasticities show that the largesteffects at low and middleincomes.The are of withrespectto incomeis positiveat incomelevels elasticity fecalcoliform below $1,375,indicating thata risein incomewould lead to a risein thelevel offecalcoliform is (Fig. 2). The risein fecalcoliform morethanproportionate to therisein incomebelow thepercapita incomeof $1,220(pointA in Fig. 2). an is and therefore Between pointsA and B theelasticity positivebut inelastic, BetweenpointsC increasein incomewould lead to a declinein fecalcoliform. and E, a 1% increasein income would implymore than 1% declinein fecal as This improvement fecalcontentis greatest per capita income in coliform. approachesabout $3,950 (point D). However,as per capita incomecontinues rise switches to increasebeyond$11,400theelasticity signagain and a further environmental in percapitaincomewould not improve qualityas measuredby of fecalcoliform rivers. in Beyond$12,820(pointG) theelasticity fecalcoliform fecal withrespectto income is elastic and positive,whichimpliesworsening incomelevels. coliform levelsat the highest 5. Conclusion Some very clear patternsof environmental degradationemerge from the incomes withrising indicators previous analysis.Some environmental improve

770

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(like water and sanitation),others worsen and then improve (particulates and sulfuroxides) and others worsen steadily(dissolved oxygen in rivers, municipal solid wastes, and carbonemissions). The turning pointsat whichthe relationship with income changes varies substantially across environmental indicators. formsseem to reflect the relativecosts and benefits that The functional individuals and countries attachto addressing certain environmental problems at different stages of economic development.Water and sanitation,with relatively costs and highprivateand social benefits among theearliest low are environmental problemsto be addressed.Local air pollution,whichimposes externalcosts locally,but is relatively costlyto abate, tends to be addressed when countriesreach a middle income level. This is because air pollution whichare problemstendto becomemore severein middleincomeeconomies, and industrialized, because the benefits greater and often intensive are energy and more affordable. Where environmental problems can be externalized, as with solid wastes and carbon emissions,there are few incentivesto incurthe substantial abatementcosts associated withreducedemissionsand wastes. But dynamicsobviouslymatterforexplainingthe patterns-technological innovationsalter the cost-benefit calculus at any point in time.The level of as tendsto have a positiveimpacton technology, proxiedby the timetrend, for environmental quality, controlling thelevelofincome.Figure 1 also shows have changedovertimeusingthecoefficient thetrend how therelationships on to generate for have unambiguously patterns different years.Some indicators improvedover time,such as water,sanitation, and sulfur particulates, oxides. But others,such as fecal coliform rivers, in have unambiguously worsened. Dissolved oxygenand carbon dioxideemissionsdisplayno change over time. Thus, where the costs of degradation are local and triggerdemand for improvements (such as water,sanitation,and air pollution),technology is Wherethecosts are diffused knowledge critical. or about detrimental effects is suchas withcarbonemissions, there little is uncertain, demandfortechnological innovations thatreduceenvironmental degradation. The evidence thatit is possibleto 'growout of' some environmental suggests But there not necessarily is problems. automaticabout this-in most anything environmental has countries, improvement requiredpolicies and investments to be put into place to reducedegradation. Further detailedresearch both on thestructural policydeterminants each environmental and of qualityindicator could showmoreconclusively natureoftherelationship the between economic environmental developmentand differing policy regimes.The econometric results heredo seem to indicatethatmost societieschoose to adopt presented that policiesand to makeinvestments reduceenvironmental damage associated withgrowth. Actiontendsto be takenwherethereare generalized local costs and substantial Wherethe costs of environmental privateand social benefits. are degradation borneby others(by thepoor or by othercountries), thereare fewincentives alterdamagingbehaviour. to

N. SHAFIK ACKNOWLEDGEMENTS

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David Wheeler,two anonymous I am grateful William Cavendish,Sweder van Wijnbergen, to College, Universities, Swathmore at in and referees participants seminars Columbia and Princeton comments. Special thanksgo to Sushenjit of and the University Pennsylvaniafortheirhelpful assistance. research for Bandyopadhyay his outstanding REFERENCES in D. ALLEN.J. and BARNES, (1985). 'The Causes of Deforestation DevelopingCountries',Annals 75, Geographers, 2. of oftheAssociation American World Bank WorkingPaper, DAVIS,S. (1992). 'IndigenousViews of Land and the Environment', D.C. Washington, Towards and theGlobal Environment: Technology I. DIWAN, and SHAFIK, N. (1992). 'Investment, in Agreement a World of Disparities',in P. Low and R. Safadi (eds), Trade International D.C. The Policyand theEnvironment, World Bank, Washington, Impacts of a North AmericanFree GROSSMAN, G. and KRUEGER, A. (1993). 'Environmental MIT in Agreement', P. Gabor (ed.), The US-Mexico Free TradeAgreement, Press,Cambridge, MA. D. HOLTz-EAKIN, and SELDON,T. (1992). 'Stoking the Fires? CO2 Emissions and Economic NY. Syracuse, SyracuseUniversity, Growth',Mimeograph, An Eruptionof Crisis and Arrayof to JOHNSON, B. (1991). Responding TropicalDeforestation. D.C. Fund, Washington, Foundation,London; World Wildlife Conservation Solutions, KNEESE, A. V. and SWEENEY, J. (1985). Handbook of Natural Resourceand EnergyEconomics, Amsterdam. North-Holland, Quality and Development:Is therea Kuzuets SELDON, T. and SONG, D. (1992). 'Environmental NY. Syracuse, SyracuseUniversity, Curve forAir Pollution?',Mimeograph, D.C. WORLD BANK (1991). 'The Forest Sector:A World Bank Policy Paper', Washington,

APPENDIX 1. Data sourcesand definitions data appendix to the World Most of the variablescited here are includedin the environmental the Report,1992.Because ofdata limitations, actual samplesize varied Bank's WorldDevelopment in was not available forall samplecountries the an Whenever indicator on depending availability. is a period under consideration, range is specifiedbelow. The sample size for each regression tablesin the main text.All variablesare in logarithms, in specified thelast columnof the relevant specified. unlessotherwise powerparity (PPP) terms productin purchasing Incomeper capita.Real percapita grossdomestic (variableRGDPCH in Penn.World Table wereused fortheyears1960-88 for95 to 138 countries production was Mark 5). The chainbase methodofindexing used to takeintoaccountthechanging Source:Summers for bundleovertheperiod.GDP data werenotavailableforall countries all years. and Heston 1991. access to safedrinking of Lack ofsafe waterwas measuredby the percentage populationwithout as In water. urbanareas access to safewaterwas defined access to pipedwateror a publicstandpipe need not spend a member of within 200 meters a housingunit.In ruralareas, it impliesa family water waterincludesuntreated water.'Safe' drinking part of the day fetching disproportionate water.Data forthis surface wells,as wellas treated boreholesand sanitary from springs, protected measurewere available foronly two years,1975 and 1985, for44 and 43 countriesrespectively. Source: World Bank.

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access to sanitation. of as Lack ofurban sanitation defined percentage urbanpopulationwithout was Access to sanitationwas definedas urban areas served by connectionsto public sewers or communaltoilets, and other householdsystems such as pit privies, pour-flush latrine, septictanks, Source: Data wereavailable for1980 and 1985 for55 and 70 countries, respectively. such facilities. World Bank. area for66 countries between1962 and the Annualdeforestation reflected yearly changein forest as 1986.The variablewas defined log [FA,1 -FAJ of and where is forest FA area in thousands hectares t takesvalue 1962-86.Source:WorldBank. area betweenthe earliestdate forwhichsubstantial Total deforestation the change in forest was data wereavailable, 1961,and the latestdate, 1986.The variablewas measuredas
lg
((FA61 -FA86)
*

100)

FA61

Source:World Bank. data wereavailable for77 countries. Total deforestation Dissolved oxygendata measured in milligrams per cubic meter,were available for 57 rivers in for 1979and 1988.Dissolvedoxygen measures distributed 27 countries intermittent between years Low levelsof dissolvedoxygencan resultfrom to the extent whichaquatic lifecan be supported. run-off fromadjacent agricultural land. Source: effluent fertilizer or large amountsof industrial CCIW 1991. wereavailable for52 rivers data measuredin numbers 100 milliliter, distributed Fecal coliform per in 25 countries intermittent for measuresthelevelof yearsbetween1979 and 1988. Fecal coliform in water.High levelsoffecalcoliform associatedwithhighincidence are biologicalrefuse theriver of waterborne disease in the affected area. Data fromfiverivers wereexcludedfromthe sample levelsoffecalcoliform These due to extremely highreported (exceeding 700,000per 100 milliliter). rivers the Atoyac,Balsas, and Lerma in Mexico, San Pedro in Ecuador, and Yodo in Japan. are Source: CCIW The effective sample size forcoliform was reducedfrom 434 to 402 observations. 1991. dioxide.Data on ambientlevelsof sulfur dioxide measuredin micrograms cubic meter per Sulfur in wereavailable for47 citiesdistributed 31 countries the years1972 to 1988. Source: MARC for 1991. matter. Data on ambientlevelsof suspendedparticulate matter measuredin Suspended particulate micrographs cubic meterwereavailable for48 citiesin 31 countries 1972 to 1988. Source: per for MARC 1991. Municipalsolid wasteper capita was computedin kilograms, the basis of available citylevel on for information 39 countries compiledforthe year 1985. Source:OECD 1991,and WRI 1990. Carbon emissions capita were expressedin metrictons per person per year,for 118 to 153 per countries between1960 and 1989. Source: Marland 1989. REFERENCES
CCIW (1991). Unpublished data fromCanada Centerfor Inland Water, Ontario. Burlington, MARC (1991). Unpublisheddata fromMonitoring Assessmnent and ResearchCentre, London. MARLAND, G. (1989). Estimnates CO2 Enmissions of from Fossil Fuel Burningand Cemant Manufacturing, Based on UnitedNationsEnergy Statistics and the U.S. Bureauof Mines Cemnent Manufacturing Data, Oak Oak Ridge,TN. Ridge National Laboratory, OECD (1991). Environmnental Indicators:A Prelimtinary Organizationfor Economic Co-operation and Set, Development, Paris.

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of Comparison,1950-1988', The Quarterly Journal Economtics. 327-68. Economics,Washington, D.C.

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SUMMERS, R. and HESTON, A. (1991). 'The Penn World Table (Mark 5): an Expanded Set of International WORLD RESOURCES INSTITUTE (1990). World Resources1990-1991,OxfordUniversity Press,New York. WORLD BANK (1992). 'World Development Report 1992: EnvironmentalData Appendix', Development