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World Development Report
Officeof the Vice President
DevelopmentEconomics
The World Bank
June 1992
Public Disclosure Authorized
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WPS 904
Background
Paperfor WorldDevelopment
Report1992
EconomicGrowth
and EnvironmentalQuality
Time-Seriesand Cross-CountryEvidence
NematShafik
and
SushenjitBandyopadhyay
It ispossibleto "growout of someenvironmentalproblems,but
there is nothing automaticabout doing so. Action tends to be
taken where there are generalizedlocal costs and substantial
private and social benefits.Where the costs of environmental
degradationare borne by others (by the poor or by othercountries), there are few incentives to alter damaging behavior.
Trade,debt, and othermacroeconomicpolicyvariablesseemto
have little generalizedeffect on the environment.
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This paper- a productof the Officeof the VicePresident,DevelopmentEconomics- was producedas
abackgroundpaperforWorldDevelopmentReport1992,
whichfocusesonthe environment.Copiesof this
paperare availablefreefrom the WorldBank, 1818H StreetNW,Washington.DC20433. Pleasecontact
the WorldDevelopmentReportoffice,room P4-001,extension31393 (June 1992,50 pages).
Shafik and Bandyopadhyayexplorethe relationship betweeneconomicgrowthand environmental quality by analyzingpattems of environmental transformationfor countriesat different
incomelevels. They look at how eight indicators
of environmentalquality evolvein responseto
economicgrowthand policies acrossa large
numberof countriesand acrosstime.
Has past economicgrowthbeen associated
with the accumulationof naturalcapital or the
drawing downof natural resourcestocks? Is the
accumulationof physicaland humancapital a
complementto or a substitutefor the accumulation of naural capital?How do these relationships vary acrossdifferentenvironmental
resources?Andhow have macmeconomic
poiHciesaffectedthe evolutionof environmental
quality?Amongtheir conclusions:
incomehasthe mostconsistentysignificant
worsenwith high investmentrates, such as
deforestationand sulfur oxides,tend to improve
with higherincomes.
* The main exceptionsto this pattern zre
dissolvedoxygenin rivers,municipalwaste, and
carbonemissions- al of whichhave negative
effectsthat can be externalized.
* Technologyseems to woit in favor of
improvedenvimrnmentalquality.Except for fecal
coliform,all environmentalindicatorsimprove
or do not worsenover time, controllingfor the
effect of income.
* The econometricevidence suggeststhat
trade, debt,and othermacroeconomicpolicy
variablesseem to have little generalizedeffect
on the environment,althoughsome policiescan
be linkedto specificenvironmentalproblems.
-Ofecton all indicatorsof environmentalquality.
But the relationshipbetweenenvironmental
quality and economicgrowti is far from simple.
As incomesrise, most environmentalindicators
deteriorateinitially,except for accessto safe
waterand urban sanitation- problemsthat
higher incomeshelp resolve.
* 'Theevidence suggeststhat it is possibleto
"grow out of" some environmentalproblems,but
there is nothingautomaticaboutdoing so policiesand investmentsto reduce degradation
are necessary.The evidenceshowsthat most
countriesfind such environmentalpolicies and
investmentsworthwhile.
Many indicatcs tendto improveas countries approachmiddle-incomelevels.There is
some evidencethat countrieswith high investment ratesand rapid economicgrowthput
greater pressureon natural resources,particularly
in termsof pollution.But some indicatorsthat
* Actiontends to be taken where there are
generalizedlocal costs and substantialprivate
and socialbenefits.Wherethe costs of environmentaldegradationare bome by others (by the
poor or by other countries),there are few incentives to alter damagingbehavior.
'De Polqy Researdi Wod PawerSenies
dissenia
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workbtedacway
inthes
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seeies
is to get these fmingts out quickly even if preserstion are less dma fuDypolished.'Me fminfgs, mtlrFetadons. and
acnlsions in thien papas do not necesarfy epesen officialBanl policy.
Pmdced by the PolicyResearh Dissem"on
Center
Quality:
Economic
Growthand Environmental
Evidence
TimeSeriesand Cross-Country
Tableof Contents
PageNo.
Ouality:
Growthand Environmental
Economic
Evidence
TimeSeriesand Cross-country
1
.......................
1
....................................................
Introduction
1
The Approach. ................................................
5
...............................
.
SomeBasicRelationships
11
. ......
.............
Degradation
of Environmental
Patterns
12
Policy ...................
Qualityand Economic
5. Environmental
1.
2.
3.
4.
13
..............................
Growthand Investment
5.1 Economic
14
5.2 EnergyPricing ..............................................
15
..................................
5.3 TradePolicy..............
19
5.4 Debt .......................................................
.
.......... .. 20
..
and CivilLiberties
5.5 Political
Remarks
6. Concluding
21
..........................................
......................................................
References
24
Changeand Per CapitaIncome. 25
of Environmental
Figure1 Patterns
with Income...... 26
Elasticities
Figure2 Changesin Environmental
27
and Income.......................
Indicators
Table1 Environment
...........28
Incomeand Investment
Indicators,
Table2 Environment
Incomeand IncomeGrowth........ 29
Indicators,
Table3 Environment
3)
Tariff...
Income
and Electricity
Indicators,
Table4 Environment
31
Incomeand Shareof Trade(GDP).
Indicators,
Table5 Environment
32
MarketPremium..
IncomeParallel
Indicators,
Table6 Environment
Indexof
Incomeand Dollar's
Indicators,
Table7 Environment
........... ..
33
........
..
Openness.....
34
Incomeand Debt .................
Indicators,
Table8 Environment
35
Rights....
and Political
In.ome,
Indicators,
Table9 Environment
....
36
and CivilLiberties
Income,
Indicators,
Table10 Environment
37
...
....
Elasticities
- IncomeEffects.....
Table11 Environmental
Income,and Policy
Indicators,
Table12 Summaryof Environmental
38
Effects...........................................
AnnexA-DataSourcesand Definitions ............................
Analysisof Incomeand Environmental
AnnexB-A Cross-section
........
Quality..........................
39-44
45-50
1
EconomicGrowthand EnvironmentalOuality: Time Seies and Cross-CountryEvidenc
1. Itoductiff
Thispaperexploresthe relationshipbetweeneconomicgrowthand environmentalquality
by analyzingpatterns of environmentaltransformationat differentincome levels. Has past
economicgrowthbeen associatedwiththe accumulationof naturalcapitalor the drawingdown
of naural resourcestocks? Is the accumulationof physicaland humancapitala complementto
or a substitutefor the accumulationof naturalcapital? How do theserelationshipsvary across
policiesaffectedthe evolution
resources?Andhowhavemacroeconomic
differentenvironmental
of environmentalquality?
2. TtpAprwh
The theoretical literature on the interaction between economic activity and the
level of
environmentis advanced- But there is little empiricalevidenceat a macroeconomic
how environmentalqualitychangesat differentincomelevels. Compilationof suchevidence
has been constrained,in part, by the absenceof data for a large numberof countries. While
data remains a problem, the situationis much improvedand this paper takes a first step at
2
systematicanalysisof what data are available.
I See Kneeseand Sweeney(1985)for the most comprehensivesurvey.
2
See AppendixA for detais.
2
A numberof caveatsare in order. Thedata on environmentalqualityare patchyat best,
acrosscountre is
but are liklly to improveover time with better momtoring. Compamability
affectedby definitionaldifferencesand by inaccuraciesand unesentative
measurementsites.
There is also controversy surroundingsome of the explanaty vanables used below particularlythose relatingto trade policy and politicaland civil liberties. At this stage of
knowledge,the objectiveis to open up the empiricaldebate. This paper is a modest step
forwardtoward a better understandingof the links betweenthe environmentand economic
growth.
Thefocuswillbe on renewableresources,suchas air, waterand forests. This is largely
becausethe most pressingenvironmentalproblemstend to be renewableones. Moreover,the
economiciiteratureon nonrenewablesis vast and fairly comprehensive. The inttemporal
problemof optimaldepletionof a finiteresourcestockwasessentiallysolveaearly this century
3 Subsequentworkhas built on Hotelling'sbasic intuitionto take issuessuch as
by Hotelling.
4
technology,imperfectcompetition,risk and uncertaintyinto account.
The problemsof renewableshave been somewhatmore intracable. Conceptually,
renewableresourcesa analogousto humanand physicalcapiial. The issueis one of opdmally
a stockof naturalresourcesto maximizeintertemporalwelfare. Thereis a further
accumulating
complicationsincenaturl capitalcan affectwelfaredirecty, as wellas throughthe production
3 Hotelling(1931).
Hotellingdid not addressthe eXtMalitiesasociated withthe depletion
or consumptionof nonrenewables,suchas pollutionfrom miningor fossil fuel consumption.
whichhave to do with the ssimilaivecapacityof renewable sinks, are
Theseealities,
the subjectof interesthere.
4
For a summary,see Dasguptaand Heal (1979)or Kneeseand Sweeney(1985).
3
process. There is the added problemof irreversibilitysince the depleion of some resource
stockscan cross criticalthresholdsat whichpointa speciesor naturalhabitatare lost forever.
-butirreversibility
is not uniqueto naturalresourcestocks-
bothphysicaland humancapitalare
often characterizedby substantialirreversibility(or wputty-clay'in the languageof vintage
theory). In capital theory, the existenceof irreversibilityresults in greater caution and
gradualismin investmen.decisions.
Becausetheenvironmentis botha consumptiongoodand an inputto production,patterns
of resourceuse at differentstages of developm.;ntwill depend,given an endowment,on the
income elasticityof demand and supply with respectto differentenvironmentalgoods and
services. This is likely to vary with the costs and benefits associatedwith changes in
defined
quality. The marginalcostsof a cleanerenvironmentare conventionally
-mvironmental
as an increasingfunctionof environmentalquality(E). The marginalbenefitsare a functionof
both the level of environmentalqualityand of per capita income(Y):
(1)
MC = f(E) where dMC/dE > O
(2)
MB = f(E, Y) where dMB/dE< Oand dMB/dY > or < 0.
It is not possibleto sign the elasticityof benefits with respect to incomebecause a
numberof differentforces are at work. The types of environmentaldegradationthat occur
dependon the compositionof output,whichchangeswithincome. Someinoomelevelrare often
associatedwith increasesin certainpollutingactivities- such as the developmentof heavy
industry. There is a view that rising incomesimplythat the valueof statisticallife or health
damagecausedby environmentaldegradationis greater. Thiswouldimplyincreasesin marginal
benefitsas incomesrise. But the poor are oftenthe mostexposedand vulnerableto healthand
4
productivitylossesassociatedwith a degradedenvironment.For example,air conditionersand
betteroverallhealth swta reduce the consequencesof air pollutionfor the rich. This would
reduce marginalbenefitsas incomesrise. There are some envirmmentalproblemswhere
thresholdslike survivalare at stake (hazardouswastesare an ecample). Here, the willingness
to pay to avert damageis close to infinityand the level of per capita incomeonly affectsthe
capacity,not the willingness,to pay. With other enonmtal
issues, the costs can be
extenalized (suchas, transational pollutionor greenhousegases)and the privatebenefitsto
avertingdamageare small. Thereis also the issueof intrnsic valuesof somenaturalresources.
There is a generalpeception that higherincomesenable the relativeluxury of caring about
amenitiessuchas landscapesand biodiversity.But manysocietieswithverylow incomes,such
as tribal peoples,place a very high value on conservation.'
At a theoreticallevel, it is not possible to predict how enviromental
ality wi evolve
with changesin per capita incomes. The questionis more tactable empiricallywhere we
observesomeclear patterns. The evidencesuggeststhat, whilethereis no inevitablepatternof
environmentaltormation
with respectto economicgrowthat an aggregatelevel, there are
clear relationshipsbetweenspecificenvironmentalindicatorsand per capitaincomes. Where
environmentalqualitydirecdyaffectshumanwelfare,higherincomestend to be associatedwith
less degrdation. But wherethe costs of environmentaldamagecan be exunalized, economic
growthresultsin a steadydeteriorationof ennmental
5Davis (1992).
quality.
3. SomeBasicRelatigaft
The first step is to explorethe basic relatonship betweenenvironmentalquality and
income,controUingfor any country-specific"fixedeffects' suchas endowment.Indicatorsof
environmentalqualitywereusedas dependentvariablesin panel regressonsusingdata from up
to 149countriesfor the period1960-90.' The uldmatesamplesizedependedon the availability
of data for the relevantvariables. The detailson data usedare providedin AppendixA. The
environmentalqualityindicatorsused were the lack of clean water, lack of urban sanitation,
ambientlevelsof suspendedparticulatematter(SPM),ambientsulfuroxides(SO,), changein
forestarea between1961-1986,the annualrate of deforestation,dissolvedoxygenin rivers7 ,
fecalcoliformsin rivers', municipalwasteper capita,and carbonemissionsper capita.9
Threebasicmodelsweretested- log linear, quadraticand cubic- to explorethe shape
of the relationshipbetweenincomeand eachenvironmentalindicator:
(3) EA= a, + a2 logY + a3time
(4) EI = a, + a21ogY+ a3logY' + a4$me
3 + astime.
(5) Ai = a, + a2logY+ a3logY2 + a4 logY
regressionswere also tried for a numberof years, but the resultswere less
6 Cross-section
robust. Becausethe numberof obsevations and the countrycoveragevaried widelyacross
years,the spedfications,coefficientestimatesand significancelevelsvariedamongcros&-section
regressions. The panel results, however,have greaterdegreesof freedomand providemore
credibleresults.
Low levels of dissolvedoxygen, usually caused by human sewageor agro-industrial
effluent,reducethe capacityof rivers to supportaquaticlife.
7
High levelsof fecalcoliformsresultfromuntreatedhumanwastesthat oftencarrydisease.
9 The choiceof these variableswas largelydeterminedby data availability. Thereare a
numberof otherenvirnmentalindicators,suchas leadconcentrationsor speciesloss, for which
sufficientdata is not availableto beginto analyzesystematically.
6
Per capita income was defined in purchasingpower paqity terms.10 All variables are in
logarithmsunlessotherwisespecifiedin the data appendix. Wherecity variableswere usedon
the left handside (in the case of localair pollutantslike ' PM and SO2),nationalincomefigures
wereusedto proxycity incomes." Intective dummiesfor the city and measurementsite were
also includedin the air pollutionand river qualityregressions." The constanttermvariedfor
each countryor city to capture country-specificeffects. A time trend was added to proxy
in technology.The resultsare reportedin table 1.
improvements
Accessto cleanwaterand urbansanitationare indicatarsthatclearlyimprowewithhigher
per capita incomes. The additionof the quadraticor cubed terms does not add considenble
explanatorypowerto eitherthe wateror sanitationregressions. The timetrendis significantly
negativein all the regressions,implyingthat, at any given incomelevel, more peoplehave
acss to waterand sanitationservicesthan in the past. Not surprisingly,accessto cleanwater
and to adequatesanitationare environmentalproblemsthat are essentiallysolved by higher
incomes. The explanationis fa;ly staightforward. In the case of water, the privatebenefits
to provisionare high(survivalis at stake)and the socialcostsof provisionare fairlylow relative
10Thecore modelwas alsoestimatesusingconventionalGDPmeasuresand the resultswere
not substantiallydifferent,althoughthe PPP measureof incomedid tend to performbetter.
" Nationalper capitaincomeis a crudeproxy for urbanincome,but sufficientdata is not
availableon incomeat the city level. The proxy usedhere assumesthat the ratio of urbanto
nadonalper capitaincomeremainsstable.
12City dummieswereincludedwhenair pollutiondata wasavailablefor morethanone city
in any country. Sitedummieswere dividedinto four categories- city centralresidential,city
centralcommercial,suburbanresidetial, and suburbancommercial. City and site dummies
were interactivebasedon the view that pollutionfrom residental and commercialsites across
cities mightvary dependingon the typesof industries,local geography,and othersite-specific
factors.
7
to the benefits. Withurbansanitation,the privatebenefitsae notas highas withwater,but the
socialbenefitsare becauseof the substantialextermalities,particularlythose relatedto health,
associatedwithpoor urban aitation.
The case for deforestationis morecomplex. The first obstale is the measurementof
deforestation. The annual variaton in deforestationrates is deceptivesince countnes that
depletedtheir forestsin the past and have sloweddown wouldappear to be doingbetter than
countres with substantialforestresourcesthat have only begut to draw down timber stocks.
Looldngat a longerperioddoesnot resolvethe problemsincedataare not availablesufficiently
far in the past to capturewhen some countrieswere cuttingdownforests most intensively(in
somecases,in medievaltimes). Recognizingtheseproblems,the disappointingresultsfor both
between1961and
the changein forestarea between1962-86and the annualrate of deforestation
1986in tableI are not surprising. Noneof the incometermsare significantin any specification.
The best fit, relativelyspeaking,is the quadraticform. But one can only concludefrom these
results that, given the measurementproblems,per capita incomeappearsto have very little
bearingon the rate of deforestation.
The two measuresof nver quality tend to worsen with rising per capita income.
Dissolvedoxygenseemsto be linearwitha negativeslope- implyinga tendencyfor worsening
in river qualitywithrisingincomes. Growingeffluentpollutionasociated withindustrialization
mayplay a role in reducingdissolvedoxygenat higherincomes. In the caseof fecalcoliform,
the cubicmodelfits the best - implyingthatfecal contentof riversworsens,then improvesand
thendeterioratesagainat very highincomelevels. The initialworseningof fecalcAntent,which
occurs up to a per capita incomelevel of about $1,375, is probablyassociatedwith growing
urbanizaionand consequentprerms on sanitation. The impovement results when urban
aitation servs
The increasein fal cofiformat high income-levels, which
are introdwuced.
beginsat an income.levelof $11,400,is moredifficultto explain,but mayreteca imprements
in water supplysystems.I Wherepeopleare no longerdirctly dependenton nvers for water,
there may be less concernaboutnver waterquality.
The elatcity of fecalcoliformwith repect to incomeis shownin the top part of figure
2. The positiveelasticityat incomeleveLsbelow $1,375(point B in figure 2) indicatesthat a
rise in incomewouldlead to a rise in t;ielevelof fecalcoliform. The risein fecalcoliformis
morethan proportonateto the rise in incomebelowthe per capita incomeof $1,220 (pointA
m
figure2). BetweenpointsA and B the elasticityis positivebut inelastic,and theiafteran
incre
in incomewouldlead to a declinem fecal coliform. Betweenpoints C and EBa 1
percentincreasein incomewouldimplymore than 1 percentdeclinein fecal coliform. This
improvementin fecalcontentis greatestas per capita incomeapproachesabout $3,950(point
D). However,as per capitaincomecontinuesto inrea
beyond$11,400the elasticityswitches
sg againand a firther rise in per capitaincomewouldnot improveenvironmentalqualityas
measmured
by fecalcoliformin rivers. Beyond$12,820(point0) the elasticityof fecalcoliform
withrespectto incomeis elasticand postive, whichimples worseng fecal coliformlevelsat
the highestincomelevels.
13 The cubic 3hapeof feal
contentis not an artct of the functionalform. The increase
in fecalpollutionwhichoccursat incomesaboveS11,500per capitais basedon 38 observations
from sevenriversin thmecountries(Austalia, Japanand the UnitedStues). This is evenafter
some exemely highobservationsof fecalcontentfrom the Yodoriver in Japanwere drwpped
from the sample.
9
Localair pollution follows a
Wbell-shaped' curve. Susended
paiculate matter (SPM),
which c,-se respiratoryillness and mortality,are largely the reult of energy use. The
regressionsfor SPM in Table 1 indicate that the quadratic model fits best, implying that
polutioni from particuates; gets worse iitay
as contries become more energy intensive, and
then improves. The improvementbeginsat a per capitaincomelevel of around$3,280. The
middlepart of figure 2 showschangesin elasticityof SPM with espectto per capitaincome.
SPM is foundto be inelasticto changesin per capita incomein the range of $570-$18,750.
Below $570, a 1 percent increasein per capita inome would lead to more than 1 percent
increasein the F.-M, Above $18,750a similarincreasewouldlead to more than 1 percent
declinein SPM.
Sulfurdioxides,whichaffecthumanhealthandcontributeto ecosystemacidification,are
also the productof energyuse, particularlythe burningof fuelswitha high sulfurcontent. The
resultsin table 1 also confirma quadraticrelationshipfor sulfuroxideswith a turningpointof
around $3,670per capita.14 The bottompart of figure 2 shows changesin the elasticityof
sulfurdioxideconcentrationswith respectto per capitaincome. Sulfurdioxideis inelasticto
changesin per capitaincomelevelsin the range of $1,1004$12,240.Below$1,100per capita,
a 1 percentincreasein income results in a more than 1 percent increasein ambientsulfur
dioxide. Similariy,the same 1 percentincreasein per capita incomefor an economywith
14ThiS is broadlyconsstentwiththe only otheresmate of this sort done by Grossmanand
Krueger(1991). They estmate only the relationshipbetweenSO2 concentrsionsand income
in a cross-sectionof countries, starting with middle income economies, to evaluate the
consequencesof trade integrationin NorthAmericafor environmentalquality.
10
income above $12,240 would lead to a more than one percent decline in sulfur dioxide
concentrations.
In the case of local air pollution,the patternseemsto be one of an initialdeterioration
of environmentalquality as industrializationand energy intensityincreases,followedby an
as regulationsinducecleanertechnologiesand fuelswitching.Technology,proxied
improvement
by the time trend,appearsto have playeda fak'orablerole in .nakingimprovedlocalair quality
possibleat an earlier stage of development. In the case of particulates,ambientair quality
improvesby about2 percenta year; ambientsulfurdioxidetendsto declineby 5 percenta year.
worsens
Municipalwasteper capitais one environmentalindicatorthat unambiguously
with risingincomes. The log linearspecificationworksthe best. Richercitiestend to produce
moregarbage,the compositionof whichtendsto be very differentthanpoor countries. Unlike
air pollution,whichis generalizedand affectseveryonewho stepsoutdoors,solidwastecan be
disposedof in isolated localities. Becausesolid waste disposalcan be transformedinto a
localizedproblem, particularlyin areas that are not densely populatedor are low income
communities,higherincomesace not associatedwithreductionsin wastegeneration.
Carbon emissons per capita, like solid waste, do not improvewith rsing incomes
because the costs are born externally. The log linear specificationhas virtually all the
explanatorypower, althoughthe quadraticand cubic terms are also significant. The turning
pointon the quadraticspecificationoccurs at over $7 millionper capita, an incomelevel that
is far fromrelevant. Theexplanationfor theexponentialincreasein carbonemissionsper capita
with rsing incomesis a classicfree rider problem. Thereare no majorlocal costsassociated
with carbonemissions- all the costs in terms of climatechangeare bome by the rest of the
11
world. Technologyhas not helped, evidencedby the insignificanttime trend, because no
incentivesto reducecarbonemissionsexist."1
4. Pattemsof EnvironmentalDegradation
Some very clear patterns of environmentaldegradationemerge from the previous
analysis. Theyare depictedin figure 1 basedon the panelregressionsand usingthe coefficient
on the time trend to generate patterns for differentyears. Some environmentalindicators
improvewith rising incomes Oike water and sanitation),others worsen and then improve
(particulatesand sulfuroxides)andothersworsensteadily(dissolvedoxygenin rivers, municipal
solid wastes,and carbonemissions).
These patterns reflect socialchoicesabout environmentalqualityat differentincome
levels. The functionalforms eflect the relative costs and benefitsthat countriesattach to
addressingcertainenvironmentalproblems.Waterand sanitation,with relativelylow costsand
highprivateand socialbenefitsare amongthe earlhestenvironmentalproblemsto be addressed.
Localair poltution,whichimposesexternalcostslocally,but is relativelycostlyto abate, tends
to be addressedwhen countres reach a middleincomelevel. This is becauseair poilution
problemstend to becomemore severein middleincomeeconomies,which are often energy
intensiveand industrialized,and becausethe benefitsare greaterand moreaffordable. Where
environmentalproblemscan be extnalized, as withsolid wastesand carbonemissions,there
u It is interestingto note that carbonemissionsper unit of capitalstockhave declinedover
time as countrieshave movedto cleanerburningfuelsand technologies.But this movenvrntto
cleaner fuels has been motivatedlargelyby concernsabout local, not global, pollutants. See
Diwanand Shafik(1992)for an analysis.
12
are fewincentivesto incurthe substantialabatementcostsassociatedwAthreducedemissionsand
wastes.
But dynamicsobviouslymatter for explainingthe patters
-
technologicalinnovations
alter the cost-benefitcalculusat any point in time. Figure 1 also showshow the paters have
changedfor the earliest and latest availabledates in each sample. Some indicatorshave
unambiguouslyimproved- such as water, sanitation,particulates,and sulfur oxides. But
others,suchas fecalcoliformin rivers, have unambiguouslyworsenedover time. Dissolved
oxygenand carbondioxideemissionsdisplayno changeover time.
There is nothing "optimal" or "suboptimal' about the patterns of environmental
degradationobserved.Theoptimalityof decisionsmustbe evaluatedin lightof intergenerational
well-being,technologicalpossibilities,environmentalregenerationrates, and the existing
resource base.16 But the evidencepresentedhere providesan indicationof the average of
choicesmadeby counries at differentincomelevels.
5. Environmental
Qualityand EconomicPolicy
The previousdiscussionfocusedon the evolutionof environmentalqualitywith resPect
to per capitaincome. The rest of this paperwill explorethe consequencesof policydifferences
acrosscounties, controllingfor the effectof income. The best fits from table 1 are the "core
models" around which the subsequentdiscussionof policy variables will be organized.
However,all policyvariableswere testedwithall functionalformsto insurethat the resultswere
16Dasgupta and Maler (1990).
13
not affectedby the shapeof the hypothesizedrelationshipwith icme.
acoss
icatons,
Whereresultsdiffered
they are notedbelow.
5.1 EconomicGrowthand Investment
Economies
ecing
rapid economic growth and investmentmay have worse
environmentalqualityrelativeto the averagefor their incomelevel if regulationsare slow to
respondto changig circumstnces. Thecase of Korea,whichpursuedrapideconomicgrowth
and industrializationand has a numberof enviomental problems,is sometimescited as an
example. But if the costs of clean technologiesare low for new investmentsbut high for
retrofitting,high investingand rapidly growing economiesmay have better than average
environmentalquality.
The evidenceis presentedin tables2 and 3. In the case of water and sanitation,high
aggregaterates of invesunent(definedas totalcapitalformationas a share of GDP)and growth
haveno additionaleffecton environmentalqualitythatcannotbe explainedby per capitaincome.
The case of deforestationis ambiguous. The regeons
for the annual rate of deforestation
indicatethathighinvestmentratesare associatedwithmorerapiddeforestation,but rapidgrowth
rates are not. However,wherethe left handside vanableis the changein forest area between
1961-86,both the investmentrate and the growth rate are inicant.
River quality as
msured by disolved oxygenis unaffectedby high investmentand growthrates, but fecal
coliformlevelsappear to rise with higherinvestmentand growthrates.
WithSPM,high investmentrates are insignificant,but rapidgrowthis clearlyassoiated
with reductionsin particulateconcentrations. Sulfur oxides, in contrast, increase in high
14
investment economies, but are unaffected by the growth rate. The generation of municipal
wastes tends to increase with rapid growth, but is not affected by the investment rate. Carbon
emissions follow the opposite pattern - they rise signpficantlywith higher rates of investment,
but are not assocated with rapid growth.
Energy-linkedpollutants, such as carbon and sulphur oxides, tend to be closely linked
to investment. Ibis implies that investment in physical capital is complementary to energy
consumption and to some lknds of pollution. Investments in pollution abatement equipment
would obviously have the opposite effect. Rapid economic growth tends to result in higher
levels of municipal waste, but more generalized pollutants that harm human health, like
particulates, tend to be lower.
5.2 ea=
rcing
Energy subsidies cause inefficient and excessiveenergy consumption, with consequent
spillovers in the form of air pollution. Because energy subsidies affect a number of different
energy types - from kerosene, coal and oil to nuclear - it is difficult to quantify their magnitude
in any country. Given data availability,the focus will be on electricity, which represents much
of the world's energy consumption. Data on electricity tariffs are available for sixty countries
for the late 1980sand have been added to the core model in table 4.17 Results are reported for
water, sanitation, river quality and municipal waste for comprehensiveness, but no direct
1 7 In order
to increase degrees of freedom, some of the regressions were run with the crosssection data on electricity tariffs for 1987 applied to the perod 1985-90. This is based on the
asumption that tanffs did not change substantiallyduring the period and/or that the short run
prce elasticity of demand was low and slowedthe response to price increases where they might
have occurred.
15
relationshipwith energy pricing was hypothesizedor found. Deforestationis an interesting
exceptionwhere there is a significantnegativesign. Countrieswith higherelectricitytariffs
have a lower rate of annual deforestation. This is somewhatcounterintuitivesince higher
electicity tariffs wouldbe expectedto encouragethe use of virtuallyfree tnergy sourcessuch
as forests. But in fact, the oppositeappearsto be true.
Theresultsfor sulfurdioxideand particulatesrevealthe importanceof energypricingfor
redacinglocalair pollution. Higherelectricitytariffsare associatedwithreductionsin ambient
levelsof particulatesand, to a lesser extent, sulfur dioxideconcentrationsin a specification
withouta timetrend. The additionof the timetrendreversesthe signof electricitytariffsin the
regressionfor sulfur dioxide, but not in the case of particulateswhere the results are fairly
robust.Is The pollutionexternalitiesassociatedwithelectricitytariffs are very apparentin the
case of carbon emissions. Increases in electricity tariffs are associatedwith significant
reductionsin carbonemissionsper capita. A scatterplot of carbonemissionsper capitaand per
capitaincomesrevealsthat the majoroutliersare the former centrallyplannedeconomiesand
someof the majoroil exporters- all of whichtendedto subsidizeenergy.
5.3 Trade Policy
The relationshipbetweentrade policy and environmentalqualityis much debated.19
Manyenvironmentalistargue that more open economiesare forced to competeby lowering
18It is interestingto note that higherelectricityprices have a significantlynegativeimpact
on ambientsulfurdioxidein the cubicspecification.Electricitypricesalso havea significantly
negativesign underall specificationswhen the city and site dummiesare excluded.
19For a surveyof the issues, see Low (1992).
16
environmentalstandardsto reduceproductioncosts. Economistsoftenarguethat the gainsfrom
tradeoutweighthe enviromental spilloversand that environmentalprotectioncostsare a very
minordeterminantof comparativeadvantage.
In fact, the impactof trade policy on the environmentopeates througha numbe;of
differentand often conflictingchannels. More open economiesare cha
d by greater
specialization.Countriesdo haveenviomental comparativeadvantagewhichwillbe exploited
in moreopensystems. In aggregate,thiswill resultin welfareimprovements,but someregions
or coantriesmayexperiencea worseningof environmentalquality. Higher-income,morecapital
intensiveeconomieswill tend to concentrateon capital-intensiveand often high pollutng
industrieswhereasdevelopingcounties will focuson labor-intensive,less pollutingindustries.
Opennessand competitionalso tend to increaseinvestmentin new technology,whichembodies
cleaner processesto meet the higher environmentalstandardsof the technologyexporting
countries. And open economiesmay adopt higher environmentalstandardsto meet export
demandor becauseforeigninvestorsincurlowercostsby imposinga commonstandardglobally.
Some preliminaryeconometricevidencefor Latin Americaindicatesthat more open
economieshave industrialstructuresthat are more concentated in cleaner industries. This
pollutingindustriesare the ones that have
is consistentwith the view that capital-intensive,
benefitedfrom protection. But thereis also evidenceof displacement- the share of polluting
industriesin LatinAmericaincreasedafterenvironmentalregulationsin the OECDbecamemore
strict.
20Birdsalland Wheeler(1992).
17
The first step in teting the importanceof opes
for environmentalqualityis the
selecdonof indicatorsof trade policy. There are now a plethoraof indiat
the litetr,
of opennessin
manyof whichgenert confictig remults21 Threedifferentindicatorsof tade
policywere added to the core models- tol importsand exportsas a share of GDP, Dollar's
index of trade orientation,' and the parallelmarketpremium(a more genalized measureof
distortions).YThey were chose becus they were availablefor a reativdy largenumberof
countriesand becausethey wer empirically-based
indicato.
The econometricresults are reportedin tabla 5-7. As nontadles,
xpeciopennessto have a majorimpacton accessto waterandsnion
one would not
or on municipalwaste.
The rgresson resultsconfirmthis vwiew,
withall indicatorsof trade policyhavingiigificant
impactson lack of water and sanitaon and municipalwasteper capita
In the case of defo
n between1961-86,none of the trade policyindicato were
iWnificanLBut the annual rate of defot
parll
was ignificantlynegativelyaffectedby the
marketpremiumand by the share of trade in GDP, althoughnot by the DoLlarindex
(see table7). This impLiesthat countriesthat trade moreput less preu
on forestresources,
perhaps because they have other sources of foreign exchange. In contrast, countries
charactered by greaterdistotio seemto deforestless on an annualbasis. These resultsare
fairlyinconcluive- not supiigy
whereboththe leftandright hand sde variles are highly
im-mw
21 For a surveyof the problemswithvariousindicatorsof tradepolicy,see Pritchett(1991).
22A higherDollarindeximpliesa moreopen trade regme.
23Documetatnof theseindicato is prvided in the data apdix.
18
There is some weak evidencethat river qualityis improvedm moreopen economies.
The share of trade in GDP, the paralkl market exchangerate, and the Dollar index are
insignificantin the regressionsfor dissolvedoxygen. In the case of fecalcoLiform,the parallel
exchangerate anr the trade shareare insignificant,but the Dollarindexis significantlynegative
- implyingthat moreopen economiestendto have less humanwastein their rivers.
The resultsfor local air pollutionare mixed. Countriesth2* raded more, as measured
by the share of importsand exports in GDP, tended to have 1ow-. tevelsof ambientsulfur
dioxide. Sulfurdioxideemissionsalso tendto increasein countrieswith substantialdistortions,
as capturedby the parallelmarketpremium,but the significancelevelis low. The Dollarindex
was very sensitiveto the specification.The coefficienton opennessas measureby the Dollar
index was significantlypositivein the quadraticspecification,but insignificantin the linear
specificationand significantlynegativein the cubicspecification.It is not possibleto drawany
strongconclusionsfrom the DoUlarindexresults. But the other measuresimplythat moreopen
and less distortedeconomiesare likely to have betterair qualityin terms of sulfurdioxide.
Ambientpardculatemeasuresdisplaya similarpatternto sulfurdioxide. The share of
tradein GDPis insignificant(but significantlypositivein the linearspecificationand negative
in the cubic). The parallelmarketexchangerate is insignificantunderall specifications.The
Dollarindexis insignificantin the quadraticspecification,but sigficantly positivein boththe
linearand cubic specifications.At best, there is weak evidencethatmoreopeneconomieshave
lowerlevelsof ambientparticulates.
The results for carbon emissions show clearly that more open and less distorted
economiespolluteless. The shareof tradeis consistentlyinsignifcant,but the parallelmarket
19
premiumis significantypositve and the Dollarmdecxis significandynegative. These results
for carbon emiions are consstent with those for electdcity prces, where pnicedis
ons
worsenedenvironmentaldegradation.
5.4 Db
Environmentalists
oftenargue tbat the burdenof debt servicingforcespoor countriesto
excessivelydegrde naturalresources. This is an aggregateversionof the argumentthat the
poor have lowerdiscountrates and thereforemanagenaural resourcessuboptimallybecauseof
theirconcernwithday-to-daysurvivaland theirlack of accessto credit and insurancemarkets.
Table8 addsdata on debtas a share of GDPto the core modeldescribedaboveto resPondto
theseconcerns.
The results indicatethat debt per capitahas no effecton the majorityof meas
of
envnmental quality. There are two exceptions. There seemsto be a clear imprvement in
ambientsulfurdioxidein countriesthatare moreindebted.Carbonemiions, however,are the
opposite - emissionsper capita increase with rising indebtedness. Thus indebtednessis
assocated with some improvementin local air quality, but globalpollutantsincrease. This
increasein carbonemissionsis equivalentto boowing from futuregenerationswho may bear
the costsof climatechange.24
24For a moretechnicaldiscusion, see Diwanand Shafik(1992).
20
5.5 Politicaland CivilLiberties
There is a perception that more open and democraticsocieties will havebetter
environmentalqualitybecauseof the publicgoodcharActerof manynatual resources. On the
maybe subjectto greaterintrest groupprese
other hand, moredemocraticsocmeties
which
couldundermie environmentalprotection. The first obstaclein tesng such hypothesesis the
measurementof politicaland cvil liberties. Twodifferentmeas
were usedhere - an index
of politicalrights, and an indexof civil liberties. The politicallberties indexmeasuresrights
suchas freeelections,the existenceof multipleparties,and decentralizaionof power. Thecivil
libertiesindexmeasuresfreedomto expressopinionswithoutfear of reprsalY25
The estimatesare presentedin tables 9 and 10. Politicaland civil liberties have
insignifcanteffectson accessto clean waterand sanitation. Greaterpoliticaland civillibertes
are associatedwithincreasesin the annualrate of deforestaion,but total deforestationover the
period1961-86was unaffected.Riverqualityas measuredby dissolvedoxygenimproveswith
increasedpoliticalliberties, but other measures are insignificant. In the case of local air
pollution,moredemocrtic countres have higherlevelsof ambientsulfuroxides. Particulates
and municipalwastesper capitawere not affectedby eitherpoliticalor civil libeties. Carbon
emissionsare ambiguous- witha positivesign in the case of civillibertiesand a negativesign
for politicalrights.
The resultsfor politicaland civil libertiesindicateno clear pattern. More democratic
regimestend to deforestmore, perhapsbecausethey are more subjectto local pressuresand
These indexesare based on Gastil (1989) and are describedin moredetail in the data
appendix.
2l
21
reluctantto enforceforest protection. But givea the uncertaintieswith respectto deforestation
data,any conclusionsmustbe tentative. Sulfuroxidesalso seemto worsenin moredemocratic
regmes, but nver qualityas measuredby dissolvedoxygentendsto improve.
6. Concluding
RQma&k
The resultsfor incomein the core modelsand th. significanceof the policyvariablesare
summarizedin Tables 11 and 12. Incomehas the most consistentlysignificanteffecton all
indicatorsof environmentalquality.26But the relationshipbetweenenvronmentalqualityand
economicgrowthis far from simple. Mostenvironmentalindicatorsdeteriorateinitiallywith
rsng incomes, with the exceptionof access to safe water and urban sanitationwhich are
asentiallysolved by higher incomes. But many indicators tend to improveas countries
approach"middleincome"levels, as evidencedby the negativesignson the quadraticincome
terms. Thereis some evidencethat economieswith highinvestmentrates and rapid economic
growthput greaterpressureon naturalresources,particularlyin termsof pollution. But some
of the indicatorsthatworsenwithhighinvestmentrtes, suchas deforestion and sfur odes,
tendto improvewithbigherincomes. Themajorexceptionsto thispattn are dissolvedoxygen
in rivers, municipalwasteand carbonemissions- all of whichhave negativeeffectsthat can
be termalized. Technology,proxiedby the time trend, clearlyworks in favor of improved
environmentalquality. With the exceptionof fecal coliform, all environmentalindicators
improveor do not worsenover time, controllingfor the effectof income.
26Thee.eptions here amedeforesttion and dissolvedoxygenwhere the effect of income
was insignificant.
22
The elasticityof each ennmental
indicatorwith respect to changesin per capita
incomeare providedin table 11. The elasticides(e) are calcuated for thre incomegroupslow, middle,and high - basedon the coefficientesdmatesof the best fittingfunctionalform:
Linear:
e = pi
Quadratic: e = PI + 2a log Y
Cubic:
e=
1
+ 202logY + 3,3 log y2
wherethe Ps are the coefficientson per capitaincomereportedintable 1.
Theenvromental variablescha
d by linearfimctionalforms- safe water,urban
sanitation,municipalwaste, and carbon dioxideemissions- have constantelastcities over
changesin income. Accessto clean waterand sanitationhave elasticitiesof -0.48 and -0.57
respectively,implyingthat a
1percent increasein incomeresultsin about 0.5 pev=entmore
peoplein the populationare servedby improvedfacilities. Municipalwastehas an elasticityof
0.38 with respectto income. The greatestlinearincomeelasicity is carbondioxideemissions
per capita A 1 percentincreasein incomeresultsin a 1.62 percentincreasein carbondiaoide
emnions
-
hencethe exponentiallyincreasg line in figure 1.
Theelaicities for the localair pollutantsfollowslightlydifferentpatterns,althoughboth
are quadratic. Prculates increaseat low incomes(with an elasticityof 0.69), but begin to
declineslowlyat middleincomelevels. Oncecounties reach highincomes,the declineis rapd.
Sulfurdioxidesincreasewithrespectto incomeat twicethe rate of particuates(theelasticityat
low incomesis 1.23) and continueto rise, albeit more slowlyat middleincomes. At higher
incomes,sulfurdioxideconcentrions declinemorequicklythanparticulates.Thusthe inverted
"Uwshapefor sufur dioxidesis later and morepeakedthan that for particulates.
23
indicator,but the elasticitiesshow
Fecalcoliformis theonly cubicshapedenvironmental
rapid increasein fecal
thatthe largesteffectsare at lowand middleincomes. Thereis an initial
content of rivers at low income levels, followedby a rapid decline at middle income.
Thereafter,thereis a slow increae at highincomes.
The impactof the variouspolicyvariablesis summarzedin table 12. Probablythe most
striling featureof the econometricresultsis how littlesome of the policyvariables- suchas
trade,distorions,and debt - seemto matterfor the evolutionof environmentalquality. Where
the policyvaiables are significant,it is withrespectto a speciic envirnmentalvariable- such
as the case of higherelectricitytariffs reducingcarbondioxideemissions. The resultsare far
from conclusive,but the empiricalevidencepointsto the absenceof any generalizedeffectsof
tradepolicy, debt or politicalregimeon the environment.
problems.
Theevidencesuggeststhatit is possibleto *growout of" someenvironmenta!
But there is nothingautomaticabout this - policiesand investmentsmust be made to reduce
degradation.The econometncresultspresentedhere indicatethat most countnesdo chooseto
adopt thosepolicychangesand to make those investments,reflectng their assessmentsof the
evolutionof the benefitsand costs to envinmental policy. Actiontends to be ta
where
-thereare genealizedlocal costsand substantialprivateand socialbenefits. Wherethe costsof
envionmentaldegadationare borneby others(by thepooror by othercountries),thereare few
incentivesto alter damagingbehavior.
24
Reernes
Dasgupta, P.S. and G.M. Heal (1979), 13conomic hey
Cambridge:CambridgeUniversityPress.
and ExhaustibleResouresm
Davis, S. (1992),'IndigenousViewsof Landand the Environment",backgroundpaper to the
1992(forthcoming),Washington,D.C.: The WorldBank.
World
wnent
Diwan, I. and N. Shaffk (1992), 'Investment, Technologyand the Global Enviromnent:
Towards Interational Agreementin a World of Disparites", in Trade Polic and
editedby PatrickLow and Raed Safadi,Washington,D.C.: The WorldBank.
Grossman,G. and A. Kruegar (1991), 'EnvironmentalImpactsof a North AmericanFree
Agreement,"paper preparedfor the conferenceon the U.S.-MexicoFree Trade Agreement,
October 1991.
Hoteling, H. (1931),"TheEconomicsof ExhaustibleResources,"Joumal-of Political
39, pp. 137-175.
Kneese,A.V. and J. Sweeney(1985),_
Amsterdam:North-Holland.
oR
u
n
Low, P. (1992),(ed.). Itemational MM&andte Environment,WorldBankDiscussonPaper,
Washington,D.C.: WorldBank.
Pritchett, L. (1991), "MeasuringOutwardOrientationin DevelopingCounties: Can it be
Done?" PRE WorkingPapernumber566, WorldBank,Watington, D.C.
-25
Fg. 1 Pattes ofEd womual Chag
Lac*o
d SaeWwr
adPerCap Icomp
Lackd UrbanSa8 ton
"1__-_
I__mL.,~~~~~m
Annul Duforeston
son
TotalDdoreatato
- l_t_
_e_~~
~ ~~~~
__
_
_
_
Cibs
Murdoip91PodartIcltMaerC4
i
w_
ve.nhF
_
_
_
_
_
_
_
_
_
InRJvet
FecalCollform
Discivrod
Oxygen
InRIver
.|-R
v
_
~
~
~
~
~
I__g
1
SulfurmDioxideC9.
M
1~~~~~~~~~~~
e__~~~
IL
ID
0
6-
Ld
g~~~~~
!tl~~~~~i
I-il
~
.
~~~~~
fTt
3
27
TableI Eft*onit
Dsph
bahdlame
Vibs
LmckdSmeWdwr
(PPP)
Im
rOMWe Inoome
71.6
1.59
4.14
GM4
0.74
16.97
19.27
(3
-249
(.1.g5
Om
Lack of Ubn S8taton
(SCLG
169.10
457
167.53
1.07
(ag
27.37
(SL4)
87.35
*
(1.151
Ann"a DortaonM
4a.34
0.76
(aSS
Dioved Oxygen
-
*
Foa Co_liom
lInRivera
*
*
-
(406
04.87
pop
3.33
.1.91
0.07
(445
54
02
123
0.24
123
0.00
400
1t11
0.00
4.00
1511
0.00
4.00
1511
4.01
58
4.00
58
40.02
58
0.00
0.99
5U6
0.90
566
0.00
0.99
558
0.17
0.96
402
017
.96
402
0.99
402
403
1.00
764
4.02
1.00
764
1.00
764
4.06
099
729
4.05
0.99
729
.99
729
0.60
39
0.63
39
Q64
39
on
-1.46
0.06
0.00
(4.44
(la"
52a
-11.55
1.34
405
(4.6%
25638
431.47
1.27
0.12
(474)
50)n
PlO
4.64
409
-
0.17
*
-
6.1
pn,
3720
-
4.74
(125
AmblenSO2
MMA
(404
(485
1.26
(go
4.06
4.02
(ag
q.u
4.41
(48
(.116
-4.12
Mae2
Q38
(Ml)
Of
11.02
-1.70
0.13
IL"
(.'.g
(1.
433.96
("a
-15&46
15&0
.195
*
-22.44
3.22
*
6.50
0.0'
1a
-0.20
241
percapita
406
40.23
564
an
Cabon Ebniuo
123
(474
16.04
P&M
3
0.08
-
-*
02Z
4.04
( 2_
(Ag
mloipi We
per 0pIts
-*
55
(I.
69.64
-
*
406
KM46p
SPM
*
4
-1.87
-
*
0.47
4g
(WS
4.18
-
*
a6
4
15.57
-41.42
0.48
K
403
4.06
*
*
403
(S5
0.04
_.(42
u
0.14
0.6S
*
043
(424
0.64
2.99
saoq
49.74
Q03
-344
*
"
Aud
R Numbr of
SquWed Obsa
H
4-02
Tai O
Ambk
Mae
0.10
40.11
349
S&
Ths
Tnd
ome
Cubed
44S
G6287
*
Ircome
Squaed
(4.14
405
0.15
(1.11)
0.08
(7S
1.82
~~~(4m)
(tvzie
-6.91
4.10
1.17
MW2
40Q
eet repoCtedhe Incde citYad
wtoA en
NoLb * Pegreion
rivewdwmlss which aow each samby to have lb own bWoe%
is or
0.00
Ome
0.00
0.5
3456
0.85
3456
400
0.86
3456
,28
Income(PPP),andInvestmnt
Indicators,
Table2 Emvironment
Variables intercept* Income Income Income
Dependent
Squared Cubed
Lackof SaleWater
72.92
F444
3.36
0.14
TotalDeforesation
-9.41
(41)
A1l)
3.31
(20w
In Riverm
u.'
4.66
AmbientSPM
(-se)
6.36
AmbientS0 2
(3.51)
per capita
4
123
0.00
0.33
0.01
1509
-0.01
58
0.99
566
0.96
402
1.00
764
0.99
729
0.61
39
0.87
3454
-0.02
1tq
(47
(4
-022
-0.22
Ka1)
0-21)
0.00
0.00
0.18
1.26
P21A
-30.46
K"
-0.28
1.21
454
IZw
4002
(.Om
KM
-0.40
-0.05
(45)
(140
(Id
-0.09
t.o1.01
0.31
(A)
0.33
0.19
(1.26
(2)
(1.35
(.2
86
021
231
-14.42
0.42
S)
-0.06
0=
248.96
.0.06
-0.08
-0.19
DisolvedOxygen
InRivers
FecalColfform
Waste
Municipal
per capila
CarbonEmissions
tam
K
-0.55
P."
o0.03
-0.46
Lackof UrbanSanitalion 172.65
AnnualDefoesaion
Adsted R Numbeof
Time Invesnmert
Squared Observatons
Trend Share
1.47
0.00
O11527
PlO)
reportedhereIncludecityandsiteor
Note:* Regessionswithoutan Intercept
whichalloweachcountryto haveitsownintercept
riverdummies
0.43
.29
Table3 EnvIonmet Indraors, Income(PPP),andIncomeGrowth
Dependent
Varable
Intercept
Lackof SafsWater
Lackof UrbanSantation
(.7.0
153.41
-0.61
-0.07
(408
Moo)
-0.05
(0.8
(401)
-9.99
3.40
-0.23
(4*8)
(1."
Disolved
Oxygen
InRiver
FocalCoiiforrn
Ambint SPM
AmbientSO2
(.1"
,A.M
)
0.43
86
0.23
120
0.00
1508
0.65
-0.02
58
0.18
0.99
566
0.96
402
1.00
764
0.99
725
0.64
39
0.85
3401
104._
0.73
P."
0.49
P
.
0.00
(1.71)
W"
-30.10
1.21
p.8)
Man
Aa"
4.68
(470)
6.84
(&79
Municipal
Waste
percapita
CarbonEmissions
percapita
0.00
,
1.00
1
-0.22
245.32
In Rivers
.
.
0.68
(4.1
TotalDeforestaiton
0.03
-0.47
("q
-2.12
IncomwAdjusedR Numberof
Grwth Squared Obsvatlomns
Tim
Trend
73.17
CL1I)
AnnualDeforestation
Income Income Incore
Squared Cubed
078
-0.29
0.12
P.=
-0.02
-0.58
(A40
(414
K.)
-0.42
-0.05
-0.05
(-7.06)
(413)
(47)
2.92
(1*0)
2.01
0.42
2.87
KM
(0.31)
C1LI
-11.53
(8
1.61
-0.00
(13.48)
Note:* Regressions
withoutanIntercept
reportedhereincludecityandsiteor
rfiverdumnieswhichalloweachcountryto haveitsownirtercepL
(078)
-0.23
-1
Table4 Ernvronment
Indicators,
Income(PPP),andElectricity
Tariff.
Dependent
Variabse. Intercept* Income Income Income
Squared Cubed
Lackd SafeWater
7.68
0-7)
Lackd UrbanSanitation
6.%s7
(4-0)
AnnualDeforestation
155.85
A0M
TotalDorestaion
-0.57
0.13
(-&Is)
p.11)
-0.42
-0.39
0.10
.7.58
01.
(4`141
e121)
Ps7M
(1.34
01-14
0.00
-0.00
4.43
P0C)
Km
p31)
836.93 -105.08
(Li
(-11)
49.63
-3.34
4.53
-
(0p24
3.55
0.21
(441)
(1.0
-43.01
(a67
28
0.09
41
0.11
71
.0.00
36
0.99
156
0.98
109
0.99
91
0.99
84
0.31
14
0.84
213
W1)
.0.30
0.1111)
per capita
(1.61)
-0.70
-0.48
FecalColform
InRivers
AmbientSPM
MunicipalWaste
percapita
CarbonEmissions
-0.06
7.00
In Rivers
0.48
.14
0.54
-22.27
DlsolvedOxygen
AmbientSO2
Time ElectricityAdjustedR Numberd
Trend
Taiff Squared Obseeato
4.41
-0.32
PLO.
01.11
.1.70
0.14
-492.93
(I o7
O."
0.28
-703.51
f11.571
-0.63 1301.35
(0 2
1.59
M.4
Note:* Regressions
withoutan interceptreportedhereIncludecity andsiteor
riverdumrnies
whichalloweachcountryto haveitsownintercept.
(47%
,
60,
0.15
(li
0.02
-0.36
P47)
RAG1
-31
Table5 Environment
Indicators,
Income(PPP),andshareoftradeInGDP.
Depeent Varlables
Lackd SafeWater
Intercept* Income Incomo Income
Squared Cubed
68.65
-0.45
-0.03
.0.10
(6.10)
(4OM
(.275
(497)
-0.54
.0.08
.0.18
Lackof UrbanSanitation 166.69
g1i)
AnnualDeforestation
TotalDeforestation
4.56
K1a
(4e7)
.21.94
6.58
Disolved
Oxygen
InRivers
FecalColiform
.06
0.01
-0.30
(-)
P
40.45
43
0.00
4.62
AmbientSPM
-
5)02)
-3283
*33
-1.06
0.22
98
0.10
1248
0.05
47
0.99
452
0.96
313
1.00
461
0.98
465
0.59
21
0.80
2254
(11.61)
1.30
0.06
Q.211
(11
0.01
(=
0.34
(4a
-0.03
0.14
03.38)
(436)
(.473
(1."
8.60
-0.51
-0.04
-0.49
(e.
40.30
74
(.465
(.1.6
272.48
0.44
1.11)
-0.32
(411)
.0.19
In Rivers
MunicipalWaste
peroapita
CarbonEmissions
per_ia
(.M
(-1I)
.24.62
(.1.
AmbientSO2
Trade
Time Sharein AdjustedR Numberof
Trend
GDP Squared Observations
(453)
(4.
0.39
1.71
0.00
(4.)
(6517)
p91)
(473
Note:* Regressions
withoutan Intercept
repouted
hereIncludecityandsiteor
riverdummieswhichalloweachcountryto haveitsownIntercept
(48)
-0.07
2.27
p.dq
-17.97
(4M
-0.01
(46
.32
Table6 Environment
Indicators,
Income(PPP)Parallel
marketpremium
Dependent
Vuiables
Lackof SafeWater
Intercept* Income Income Income
Squared Cubed
8201
(27
Lackof UrbanSanitation 115.27
(1.41)
AnnualDorestation
45.81
(344)
Tota Deforestaton
-16.78
1-1.10)
DisovedOxygen
in Rivers
FecaiColiform
In Rivers
AmbientSPM
-0.46
-0.04
(446
(43)
.0.47
*0.05
(487)
0.0.1
1.53
(124)
5.26
(t.37
-0.11
-0.02
(.1
(7
-0.36
01.0
A7M
0.00
4.87
AmbientSO2
10.77
AOM
(O.2M)
-49.27
(4)
40.30
0.04
*0.06
-0.01
0.01
895
0.02
41
0.99
422
0.96
283
1.00
373
0.99
377
0.66
16
0.80
1812
(4
40.01
0.10
(153)
(410)
(1.5
-0.02
-0.01
(477)
Km~
.0.03
0.04
(A02)
(-O)
(1.4A
0.27
-0.02
(4.r))
(458%
1.64
90
192
(8.74)
(.76)
0.12
AM7
3.32
2.94
61
(456
1.98
(-22)
-0.70
0.38
*
(1.6
404.54
*0.03
0.05
_
.0.23
CUM3j
Municipal
Waste
prer apita
CarbonEmissions
per capita
Parallel
Time MarketAdjustedR Numberof
Trend Premium SquaredObservatons
-0.01
(8)
Note:* Regressions
withoutaninterceptreportedhereIncludecityandsiteor
riverdummies
whichalloweachcountryto haveitsownintercept
(43
0.07
(7.01)
-33
Table7 Environment
Indicators,
Income(PPP),andDollar'sIndexof Openness
Variables
Dependent
Lackof SafeWater
Intercept* Income Income Income
Squared Cubed
(1.63)
(406
(.34
(4.74
25.18
-3.97
(093)
TotalDeforestation
-
In Rivers
,
In Rivers
AmbientSPM
-0.06
.17)
(M2M
per capita
(46
Dollar AdjustedR Numberof
Index Squared Observations
3.94
-11.63
3.13
0.13
.1.10
(1.49
6.92
-0.39
0.32
-488.46
a
(-.O)
-0.02
2.91
(KoZ
(6.66)
3.77
(Z)11)
-_
-22.94
1.37
-0.01
26.10
M3U)
(.068)
(3.03)
-6.75
0.26
2.19
(4.03)
(4A40
P."
45.56
(3.56
1.72
.
105
0.02
657
-0.04
60
0.99
290
0.95
186
1.00
196
0.98
198
0.55
19
0.82
1113
A_7M
(-1.1)
(.zz=
0.23
(64
4.27
-86.29
79
(1.
*0.01
p26)
0.41
(P.A
-0.27
(453)
Municipal
Waste
percapita
CarbonEmissions
-0.01
(Lam
2.74)
AmbientSO2
t1)
0.29
0.60
653.43
FecalCollform
-0.07
,
MM1) _
-11.63
(49
DisolvedOxygen
(43)
-0.57
Lackof UrbanSanitatlon 209.53
AnnualDeforestaton
-0.29
-0.44
46.24
Time
Trend
-0.00
-11.43
(477
(-61)
(61.16)
Note:* Regressions
withoutan interceptreportedhereIncludecityandsiteor
riverdummieswhichalloweachcountryto haveitsownintercept.
.34
Table8 Environment
Indicators,
Income(PPP)andDebt.
Dependent
Vaiables
Intercept
Lackof SafeWater
55.65
.0)
Lackof UrbanSaniation
AnnualDeforestation
Time
Debt AdjustedR Numberof
Trend PerCapita Squared Observations
048
-0.02
(M77)
(.1.711
-0.03
-0.44
.0.07
0.02
O1."
(-&&I
F175
w
Fss)
9.58
1.31
(1.01)
-15.25
4.89
(404
(.07)
Disolved
Oxygen
in Rivers
FecaiColform
in Rivera
AmbientSPM
-0.08
-0.00
(4.
_
-0.34
(..
AmbientS0 2
-0.01
0"7
)J
529.73
2.86
0.11
PL.8
(ze)
7.70
-0.51
.0.01
P.40)
(447)
(408
-1.27
0.01
(4.06)
PF60)
19.70
;3ESI
0.06
(toU)
-0.26
0.06
(4
467.62
P
(1.88
-0.12
0.04
-C.27
892
-0.02
54
0.99
403
0.95
270
1.00
295
0.99
729
0.34
14
0.81
1525
(438
0.39
-0.19
(Lam)
A.1
M.1.1
1.67
-0.00
(4U)
2.24
(1.70)
114
(C
per capita
13.11
0.11
1
Municipal
Waste
CarbonEmissions
percapita
82
(l.01)
-0.17
..
0.40
(441)
145.90
()
TotalDeforestation
Income Income Income
Squared Cubed
.0.01
(9.48)
Note:* Regressions
withoutan interceptreportedhereincludecity andsiteor
riverdummies
whichalloweachcountryto haveitsownintercept
(1415)
0.16
(73
-35
Table9 Environment
Indicators,
Income(PPP),andPoliticalRights
Dependent
Variables
Lackof SafeWater
Intercept* Income Income Income
Squared Cubed
70.03
-0.47
p2m
(475)
Lackof UrbanSanitation 154.11
Annua-Deorestation
--
0.42
e8
0.21
118
.0.00
762
0.07
S5
0.e9
409
0.96
279
1.00
383
0.99
387
-0.02
0.62
21
0.00
-0.03
0.77
13S7
14)
(4K7)
.
-0.07
0.08
(4U90
0.11"8
-0.12
0.82
-0.05
0.01
0.07
."
4
(1.01)
71)
.14.31
5.16
-0.38
.0.16
( 12:~~~O" Mam
0.114
f-i,^
-0.19
61p1
349.33
asM
5.58
42.35
(188
12.41
(4.)
CarbonEmissions
percapita
0.01
.
(488
AmbientSO2
prerapita
-0.03
.au4
-0.42
Disoived
Oxygen
in Rivers
FecaiColiform
in Rivers
AmbientSPM
MunicipaWaste
PoliticaiAdjustedR Numberof
Rights Squared Observations
(117)
(434)
TotalDeforestation
Time
Trend
2.82
.00
1.69
0.08
0.03
n
-0.02
vu1)
(1.3a
8
411
-0.34
-0.02
0.02
(-80)
(400)
(.8_
0.00
0.18
.ar
(230M
-0.82
(7
(0.04
0.34
_
(3
(4.240)4411
-10.88
(4
1.16
(02)
Note:* Regressions
withoutan interceptreportedhereincludecityandsiteor
riverdummies
whichaWlow
eachcountryto haveitsownintercept
36
Table10Environment
Indicators,
Income(PPP),andCivilUberties
Dependent
Variables
LackofSafeWater
Intercept* Income Income Income
Squared Cubed
74.69
-0.45
-0.03
(3M
(4.67
Ke
(4`1)
CarbonEmissions
percapfta
117
0.00
762
-0.18
0.06
56
0.00
0.02
0.99
409
p24)
A0o7
0.13
0.24
0.96
279
1.00
383
0.99
387
0.65
21
0.84
1355
0.11
(2410
(G1.
*1.21
1.61
-0.06
0.00
0.13
(463
Px07)
-15.53
AGO
w
5.49
-0.40
(1.?7
0.911)
(.54
263.72
(1.74)
5.66
-
(1.5
(ZOO)
0.02
(O."
0.14
-0.01
(-.O?)
(.1.00)
p536)
1.63
(1.6
(4z56
-0.88
0.24
A6
.0.02
WV2)
(463)
(&40)
(-1.41)
1.26
017
13.42
3.63
-12.85
-31.83
-0.35
__
_1.3
-1.25
_AM
percapita
0.20
.0.09
DisoivedOxygen
InRivers
FecalColifon.a
in Rivers
AmbientSPM
Municipal
Waste
86
(.413)
1.34)
AmbientSO2
0.43
(1.12_
-0.48
(44)
TotalDeforestation
0.04
(_4I
Lackof UrbanSanhtalon 179.75
AnnualDeforestaton
Time
CMI AdjustedR Numberof
Trend Uberties SquaredObservations
(
.0.00
0.04
p.oe
0.03
(414
C.6B
(7557)
Note:* Regressions
withoutaninterceptreportedhereincludecityandsiteor
riverdummieswhichalloweachcountryto haveitsownintercept.
37
Table11 Environmental
Eiasticities
- IncomeEffects
Lackof safewater
Lackof urbansanItaton
AnnualDeforestation
TotalDeforestation
Dissolvedoxygen
Fecalcolform
AmbientSPM
AmbientS02
Municipalwasteper capita
Carbonemissionper capita
Notes:
-
-
Low
Income
Middle
Income
High
Income
-0.48
-0.57
o
o
o
4.08
0.74
1.17
0.38
1.62
-0.48
-0.57
a
o
a
-420
-0.03
0.04
0.38
1.62
-0.48
-0.57
a
o
o
-0.11
-0.70
-0.93
0.38
1.62
Theelasticitiesof environmental
Indicatorswithrespet to Incomeare
calculated
for - low,middleandhigh
Incomesdefinedas $900,$3500and $11250
In PPPdollarsrespectively.
TheseIncome
groupsrepresentthe averagePPPpercapita
Incomeequivalentsof the WorldBank's
countryclassificaltion
of low,middleand
high Incomecountries.Averagelow,middle
and high per capitaIncomelevelsareused
to calculateelastcitiesbasedon the coefficient
estimatesof the bestfittingmodelIntable1.
o Indicatesthe effectsof the right
handsWevariableon the environmental
slgntficant
Indicatoris not statisticaily
at the 5 % level.
Tbeb 12
S
_
f
.j
- Indcamra Icomp nd Policy Effecls
Incme Inrome
lsckof eaf meter
Lck of urbsn *nitetian
Amml Dforeftstion
Total Deforestetion
hssolved
oxyumn
fecal coliform
mbientSPU
Ambien
t
s0
madcipel eastepercapIta
Ctrban_missfm per capfta
Incoe
0
0
0
0
0
0
0
0
0
°0
0
0
0
0
+0
+
.
0
0
0
0
+
4
0
Time
0
InvestmrntGP
Electricit)
MP
Growth
Tariffs
0
0
0
0
-
0
-
+
0
O
+
0
0
0
0
0
0
0
+.0
0
Trede Perallel
Share
Nhrket
of GDP Premiu
Dollar
opwmas
Index
Debt
per cpita
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
°0
0
0
0
0
0
0
+
-
0
+
0
°
0
0
0
0
0
-
0
0
Political
Rights
Civil
Liberties
0
0
0
0
0
0
0
0
0
-
+
+
0
0
0
+
Notels .me.n that an Increae in the right hwndside variable results in an increase in the ewiraronntel indicator at the 5Xsipiftieince level.
_me..
that an Incr ase In the right hand sid. veriable results in a decreaseIn the environmental indicator at the 5X significwce level.
O indicates the right handside variable hes an Insignificant effect on the environmmntelIndicator.
not applicable.
0
0
w
Go
-39
Annex A
Data Sourcesand Definitions
Unlessotherwisespecified,the sourceof all data is the WorldBankdata base. Mostof
the variables cited here are included in the environmentaldata appendix to the World
DevelopmentReport,1992.Becauseof datalimitationsthe actualsamplesizevaned depending
on availability.Wheneveran indicatorwas not availablefor aU samplecountriesin the period
underconsideration,a rangeof the numberof countriesis specifiedbelow.The samplesize for
each regressionis specifiedin the last columnof the relevanttables in the main text. All
variablesare in logarithms,unlessotherwisespecified.
Left Hand SideVariables:
Lackof safe waterwas measuredby the percentageof populationwithoutaccessto safe
drining water. In urbanareas accessto safe water was definedas accessto piped wateror a
publicstandpipewithin200 metersof a housingunit. In rural areas, it impliesa familymember
part of the day fetchingwater. "Safe"drinkingwaterincludes
neednot spenda disproportionate
untreatedwaterfrom protectedsprings,boreholesand sanitarywells,as wellas treatedsurface
water. Data for this measurewas availablefor only two years, 1975and 1985for 44 and 43
countriesrespectively.Source:WorldBank.BankEconomicand SocialDatabase(BESD).
Lack of urbaxsanitationwas definedas percentageof urbanpopulationwithoutaccess
to sanitation.Accessto sanitationwas definedas urbanareas servedby connectionsto public
sewersor householdsystemssuch as pit privies, pour-flushlatrine, septictanks, communal
40
toiletsand other suchfacilities.Data was availablefor 1980and 1985for 55 and 70 countries
respectively.Source:WorldBank,BESD.
reflectedthe yearlychangein forestarea for 66 countriesbetween
AnnualdeforUMtati9n
1962and 1986. The variablewas definedas
log[ PA,, - FA, ]
whereFA is forestarea in thousandsof hectareand n takesvalue 1962to 1986.Source:World
Bank,BESD.
Total deforestationwas the changein forestarea betweenthe earliest date for which
substantialdata was available,1961,and the latest date, 1986.Thevariablewas measuredas
lg ((FA 6 - FAN10)
Total deforestationdata was available for 77 countries. Source: World Bank, BESD.
DissolYedOXyg measuredin milligramsper cubic meter, was availablefor 57 rivers
distributedin 27 countriesfor intermittentyears between1979and 1988. Dissolvedoxygen
measuresthe extentto whichaquaticlife can be supported.Low levelsof dissolvedoxygencan
result from large amountsof industrialeffluentor fertlizer runofffrom adjacentagricultural
land. Source:CCIW, 1991.
Fec coliformmeasuredin numbers per 100 milliliter, was availablefor 52 rivers
distributedin 25 countries for intermittentyears between 1979 and 1988. Fecal coliform
measuresthe level of biologicalrefuse in the river water. High levels of fecal coliformare
associatedwithhighincidenceof waterbornediseasein the affectedarea. Data from fiverivers
.
.41
were excluded from the sample due to extremelyhigh reported levels of fecal coliform
(exceeding700,000per 100milliliter).These riversare Atoyac,Balsasand Lerma in Mexico,
San Pedro in Ecuadc,rand Yodo in Japan. The effectivesamplesi
for fecal coliformwas
reducedfrom 434 to 402. Source:CCIW, 1991.
Sulfurdioxde, Data on ambientlevels of sulfurdioxidemeasuredin microgams per
cubicmeterwereavailablefor 47 cities distributedin 31 countriesfor the years 1972to 1988.
Source: MARC, 1991.
Sused
pariclt
mattD Data on ambientlevels of suspendedparticulatematter
measuredin microgamsper cubic meterwere availablefor 48 cities in 31 countriesfor 1972
to 1988. Source:MARC, 1991.
M=unicl solid waste =
was computedin kilogrms, on the basisof available
city level informationfor 39 countdescompiledfor the year 1985. Source:OECD, 1991and
WRI, 1990.
Carbon emisionspe
apita was expressedin metric tons per person per year, for
118-153countriesbetween1960and 1989.Source:Marland,1989.
RightHand SideVariables:
ncme er capi. Real per capitagro domesticproductin purchasingpower parity
(PPP)terms were usedfor the years 1960to 1988for 95-138countres (variableRGDPCHin
Penn. WorldTableMark5.). The chainbasemethodof indexingwasusedto takeinto account
thechangingproducdonbundleoverthe penod. GDPdata wasnotavailablefor all the countries
for all the years. Source:Summersand Heston, 1991.
42
Invemt
a share of GDP. Investmentdata was from Summersand Heston, 1991in
PPP terms (variableI in Penn. WorldTablesMark 5).
Growthof real incomewas derivedas the log of the first difference,from the sameper
capitaincomevariableand populationestirnatesdescribedabove . Source:Summersand Heston,
1991.
IS=didity
ff in US cents per kilowatthour for 60 countriesin 1987was used as a
proxyfor energyprices in those countriesbetween1985to 1988.Source:WorldBank, 1990.
Trade hri
GDO. Tradeshare was measuredby total importsand exportsof goods
and non-factorservices as a percentageof GDP. Data were availablefor 67-88 countres
between1960and 1988. Source:WorldBank, 1991.
Parallelmarke foreignexchangeprMmiawas basedon the differencebetweenofficial
exchangerates and parallelmarketrates calculatedas
PARALLEL = [ (PMER - OER) / OER]*100
where PMER is the paralle market exchangerate and OER is the official end of period
exchangerate. The data was availablefor 36-99countriesfor the years 1960to 1988. Source:
WorldBank, 1991.
DolJla's ward orientationindexfor 87-90countriesbetween1973and 1985as derived
in Dollar, 1991.The index was computedby the weightedavenageof meanprice distortionin
the period 1973-85and of its standarddeviation.The price disorn
was calculatedas the
residualof a regrsion of the reladveprice of consumptiongoods on urbaniaon, GDPper
capita(a proxyfor a country'sendowment)and an interactiveterm. All variableswereentered
in logs, so that the residualcouldbe interpretedas a percentageof deviationfroman appropiate
-43
levelas determinedby the countries'endowment.Source:WorldBank, 1991,also see Dollar,
1991.
pebt as a share of GDP for 83-119developingcountriesbetween1960and 1988was
usedfromthe WordBank'sdatabase.Debt wasdefinedas disbursedamountsof short and long
termexternalliabilitiesoutstandingand IP credit. GDP was measd
in 1987US dollars.
cal rigbtsindexmeasuresrightsto partcipate meaninlly in the politicalprocess
for 108-119countriesfor 1973and 1975-86on a scale of one to seven wherelower numbers
indicategreaterpoliticalrights (see Gastil, 1989).A high rankingcountrymust have a fully
opeating electoralprocedure,usuallyincludinga sgnificantoppositionvote. t is lkely to have
fromonepartyto another,an absenceof foreigndomination,
hada recentchangeof goveemment
decentralizedpoliticalpower and a consensusthat allowsall segmentsof the populationsome
power. The index was constructedon the basis of saifaction of the above and other reated
critmiaby the counties in question. This variableis an indexand not in logs. Source:Gastil,
1989. Also see WorldBank, 1991.
Civ hbertes ndex. measur the extent to which people are able to express their
opinionopenly withoutfears of reprisals and are protectd in doing so by an independent
judiciary.Thoughthis indexreflectsrightsto organizeand demonstrateas well as freedomof
reigion, education,traveland otherpersonalrights;more weightwas given to those libri
that are mostdirectlyrelatedto the xpressionof polidcalrights. This variableis an indexand
not in logs. Source:Gastil, 1989.Also seeWorldBank, 1991.
Dfta referencedfor AnnexA
cciw. 1991. unpublisheddata firomCanada,Cete for InlandWaters. Burlington,Ontario.
44
Dollar, David. 1990. 'Outward Orientationand Growth: an EmpinricalStudy using a Price Based
Ro
1991, background paper. WashingtonD.C.
Method". WorL Delomen
Gastil, Raymond. 1989. Freedom in the World. New York. Freedom House.
MARC. 1991. Unpublisheddata from Monitoring and AssessmentResearch Centre. London.
Marland, Gregg et al. 1989. Estimates of CO%Emissions from Fossil Fuel Buning and Cem
ManufctuMring. ad on United Nations Enery Statistics and the U.S. Bureau of
Cment Maml fang Pah. Oak Ridge National Laboratory. Oak Ridge, Tennessee.
OECD. 1991. Environmental Indicators: A Preliminary Set. Organization for Economic
Co-oprtion and Development,Paris.
Summers, Robert. and Alan Heston. 1991. 'The Penn World Table (Mark 5): an ExpandedSet
of International Comparisons, 1950-1988". The QUerly Journl of Economics. May. pp
327-368.
World Resources Institute. 1990. World Resou
New York.
1990-1991. Oxford University Press.
World Bank. 1990. "Reviewof Electricity Tariffs in DevelopingCountries in the 1980's".
Energy Series Paper 32. Industry and Energy Department. WashingtonD.C.
World Bank. 1991. "World DevelopmentReport 1991: SupplementaryData". mimeo
DevelopmentEconomics. WashingtonD.C.
World Bank. 1992. "World Development Report 1992: Environmental Data Appendix".
mimeoghA, DevelopmentEconomics. Washingtn D.C.
45
Annex B
A Cros-secon AnalYsisof Incomeand EnyfronmentalQualt
Thisannexprovidesdoentation
for figure4 and figure 1.5 of the WorldDevelopment
Report 1992 on the relationship between income levels and vintal
quality for a cross
sect;-n of counties in the 1980s.The annexdoesnot take into accounttimeserieseffectsthat
are exploredthroughpanel data in the mainbodyof the paper.Figure 1.5 rePortscross-section
resultsfor two differentyears for the lack of urbansanitationand ambientsulfurdioxides.Both
theseest
es are reportedhere.
Six indicators of enviroental
quality are considered:lack of safe water, lack of urban
sanitation,ambient levels of suspendedparticulate matters, sulfur dioxide, generon of
municipalsoLidwaste,and per capita carbonemisons.
Three modelswere tsted
-
log linear, quadraticand cubic - to establishthe shapeof the
relationshipbetweenincomeand each envrnmental indicator.The cubic modeldid not add
considerableeplanaty powerto any of the regresions, so it wasdroppedfrom the analysis.
Themodelwiththequadratictermwasfounoto contributesignifctly to theexplanatorypower
of the regressionsof the local a& pollutants;that is, suspendedpardculatematterand sulfur
dioxideconettions.
The log linearmodelwasfoundto have the mostexPlanatorypowerfor
reaessions with all the other envmental
indicators.
The two functionalforms considered,the log linear and quadratic, are:
a) log(E) = a + , log(Y)
b) log(E = a + 11 log(Y) + 12 1og(Y)2
46
where E is the respectve environmentalindicatorand Y is the per capita incomeiriable
deribed below.Cross secin analysisfor deforeon
and indicators of river qualitywer
notreporteddue to datalimitations.Theactualsamplesizevarieddependingon dataavailability.
Unlessotherwisespecified,the sourceof aUdata is the WorldBankdata base.The best fitsfiir
the cross-sectionresults,thosethat are repreented in the figuresin WorldDevelopmentReport
1992,are reportedbelow.
Right Hand Side Variable:Real per capita gross domesticproductin purchasingpower
parity (PPP) terms were used for the years between 1976 and 1988 for 39-135countries
(variableRGDPCHin Penn. WorldTableMark 5.). The chain base methodof indexingwas
used to take into acount the changingproductionbundleover the period. The range of yeas
and the acal sample size of countres were dependenton data availability.Data source:
Summersand Heston, 1991.
Lef Hand Side Variables:
Lack of safe water was masured by the percentageof populationwithoutaccessto safe
drinkng water.Accessto safe waterwasdefinedas accessto pipedwateror a publicstandpipe
within200 metersof a housingunit,inan urbanareas. In nrAl area, it impliesa familymember
neednot spenda dispopion
part of the day fetchingwater. "Safe"drinkng waterincludes
untreatedwat from protectedsprings,boreholesand sanitarywells,as well as teated surface
water. Data for the year 1985for 43 counties was egressedon per capita incomeand th log
inear modelprovidedthe best fit:
1. log(nosafe water) = 7.6507 - 0.5423 * log(Y)
(9.78) (-5.16)
AdjustedR2 =0.38
Data sourc: WorldBankLBankEconomicand SocialDatabe (BESD).
47
Lackof urbansaitation was definedas the percentageof urbanpopulationwithoutaccess
to sanitation.Accessto sanitationwas definedas urbanareas servedby connectionsto public
sewersor householdsystems such as pit privies, pour-flushlatrine, septic tanks, communal
toiletsand other suchfacilities.Twosets of cross-sectionestmates were madeusinglog linear
modelfor 1980and 1985for 55 and 70 countriesrespectively.
2. 1980:log(nosanitation) = 7.4640 - 0.5269 * log(Y)
(7.65)
(-4.12)Adjusted
R2 =0.23
3. 1985:log(nosanitation) = 7.6434 - 0.6051 * log(Y)
(6.69)
(-3.96)Adjusted
R2 =0.19
Data source:WorldBank. BESD
Susapde pfiulate matter(SEX Dataon ambientlevelsof suspendedparticulatematter
measuredin microgramsper cubic meterwere availablefor 35 citiesin 21 countriesfor 1985.
Data for ambientparticulatelevels was availabledisaggegated by city and site. Sites were
dividedbetweenresidential,commercialas wellas by locationclaifications suchas city center
and suburbs.Citydummieswereusedin the quadreticmodelto takelocationspecificeffectsinto
account.
bl) log(.)
= r1 +
, log(Y) + 62 log(Y) 2
whereai are coefficientsof the interceptdummyfor the P city. To obtaina relationshipbetween
incomeand ambientlevelsof SPMthat is independentof the citylocationeffects,a wasdefined
as the weighted mean of o4. Where the weights were the proportionof the number of
observationsfrom the i' city in the sample.The equationused to predictSPM concentradons
for differentincomelevelsin 1985were:
4. log(SPM)= 0.17 + 2.76 * log(Y)- 0.26 * log(y)2
(13.01)
(-9.81)
AdjustedR2 =0.56
48
Data source:MARC, 1991.
SrI
d3iod Data on ambientlevelsof sulfurdioxidemeasuredin microgramsper cubic
meterwere availablefor 25 citia in 18 countriesfor 1976and for 31 cities in 21 countres for
1985.To take into accountthe locationspecificeffectsof differentsites, the quadreticmodel
was modified,so that:
b2) log(E) = aj + $1 log(Y) +
a2 log(Y)9
whereaj coefficientsof interceptdummyfor the j* site type.To obtaina relationshipbetween
incomeand SO2 emissions,thatis independentof the site effects,a was definedas the weighted
meanof
CXj.
Where the weightswere the proportionof the numberof observationsfrom the j'
site type in the sample.The final equationusedto predictS02 emissiomfor differentincome
levelsin 1976and 1985were:
5. 1976:log(S02 )
= -1.50 + 1.46 * log(Y) - 0.10 * log(Y)P
(-0.27) AdjustedR2=0.94
(0.24)
(-)
2
6. 1985:log(SO) = -6.35 + 2.77 * log(Y) - 0.19 * log(Y)
(-1.93) AdjustedR2 =0.97
(1.74)
(-)
Data source:MARC,1991.
Muniia
solidwat pe capit was computedin kilograms,on the basisof availablecity
levelinformationfor 39 countres compiledfor the year 1985.A simpleaveage was usedwhen
data for more than one city in the same country was available. Three centrally planned
economies,Bulgaria,Hungaryand Poland were dropped from the samplebecause of data
inconsstency.
7. log(waste)= 2.4122 + 0.3844 * log(Y)
AdjustedR2 =0.60
(5.51) (7.69)
Data source: OECD,1991and WRI, 1990.
49
Carbon-endasios,= ca1ita was expressedin metric tons per person per year, for 135
countriesfor the year 1985.Esimates of nationalcarbonemissionswere basedon cnsuton
of fossil fuels in gas, liquid and solid forms and do no. include carbon emisions from
oxidizationof bio-mas. Carbonemissionswas regressedon per capita incomeusing the log
linearmodel.
8. log(per capita cbon) = -13.4848 + 1.5625 * log(Y)
R2 =0.89
(-35.31) (32.49)Adjusted
Data source:Marland,1989.
Romazka
To generatethe graphs reportedin the WorldDevelopmentRew
(1992),an uniform
distributionof incomewas generatedsting from 100PPP dollarsto 33,000PPP dollar, with
a constantinteral of 200 dollars.This uniformdistributiondoes not reprst
real countries,
but rather is a hypothetcal range of incomesa countrymight have. The minimumand the
maximumvaluesof this distibutionwere chosento cover the rangeof observedincomeof the
poorestand the richest countries in the sample. The uniform distribution was suitably
transformedusingequations1 through8, to arriveat the predictedlevelsof eachenvronmental
indicatorfor any givenlevelof per capitaincome.Thesepredictedvaluesof the environmental
indicatorsderivedfromequato 1 through8 are graphicallypresentedin FigureB.1 andFigure
B.2 of this annex.
Tbe resultspresentedabovewerefoundto be constent with the broaderfindingsbasedon
paneldata in Shafikand Bandyopadhyay,
1992. In general,the parceresults were morerobust
thanthe cross-section
ones.Unevensamplingdeterminedby availabilityof datalad to increases
50
in the variance of the esdmated coefficients when cross-section samples from different years
were used.
Data references for Annax B
MARC. 1991. Unpublished data from Moning
AsemenBCMgh CotM Londo.
Marland,Gregget al. 1989.
Manufatuig. Biase on Unite NationsEa=rg Statistics ind the.U.SLBureauOfMfines
Cement
anufaclwin
Data Oak Ridge Nationa Laboratory. Oak Ridge, Tennessee
OECD. 1991. Envinmental Indicators: A Prelimir
Co-opetion and Development. Paris.
Set. Oanization
for Eonomic
Summers, Robert. and Alen Heston. 1991. -The Penn World Table (Mark 5): an ExpandedSet
of International Comparisons, 1950-1988". The Quarterly Joumal of Economics. May. pp
327-368.
World Resources Institute. 1990. World Resuurces 1990-1991. Oxford University Press.
New York.
Data". mim
World Bank. 1991. "World Development Report 1991: Supplemenmtary
DevelopmentEconomics. WashingtonD.C.
Polly
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