British Academy: The UK's National Academy for the Humanities and Social Sciences

Partha Dasgupta: 'The Economics of the Environment'
Copyright © The British Academy, 1996
Printed in Proceedings of the British Academy, Volume 90, pp. 165-221

7. Economic Growth and the Environment [note 18 (go to Notes)]

Since economists have neglected the environment, it shouldn't come as a surprise that national economic policies have also neglected it. Interestingly, the idea that economic growth is perhaps even good for the environment has recently been stressed by the finding that, for a number of pollutants there would appear to be an empirical relationship between income per head and environmental quality: as income per head increases, environmental quality deteriorates up to a point, beyond which environmental quality improves (World Bank, 1992). In short, the relationship has a bell shape.

This is how one is tempted to explain the finding. People in poor countries can't afford placing emphasis on amenities over material well-being. Therefore, in the early stages of economic development, increases in pollution are regarded as an acceptable side-effect of economic growth. However, when a country has attained a sufficiently high standard of living, people care more about amenities. This leads them to pass environmental legislation, instal new institutions for the protection of the environment, and so forth.

The argument hasn't been invoked for the environmental resource-base, but rather, for amenities. In any event, the bell shaped curve has been uncovered for a selected set of pollutants only. But as it is consistent with the notion that as their incomes rise people spend proportionately more on environmental quality, economists have conjectured that the curve applies to environmental quality, more generally. [note 19] It is as well to be clear, though, about the kinds of conclusion that can be drawn from these empirical findings. While the findings do indicate that economic growth can be associated with improvements in some environmental indicators, they imply neither that economic growth is sufficient to induce environmental improvement in general, nor that the environmental effects of growth may safely be ignored, nor, indeed, that the earth's resource base is capable of supporting indefinite economic growth. On the contrary, if the resource base were irreversibly degraded, economic growth itself could be at risk.

There are other reasons for caution in interpreting such bell-shaped curves. First, the relationship has been shown to be valid for pollutants involving local short-term costs (e.g. sulphur, particulates, fecal coliforms), not for the accumulation of stocks of waste, nor for pollutants involving long-term and more dispersed costs, such as carbon dioxide, which typically increase with income (World Bank, 1992).

Second, the bell-shaped curves have been uncovered for emissions of pollutants, not resource stocks. The relationship is less likely to hold wherever the feedback effects of resource stocks are significant, such as those involving soil and its cover, forests, and other ecosystems, such as mangroves.

Third, the bell-shaped curves, as they have been estimated, say nothing about the system-wide consequences of reductions in emission. (For example, reductions in one pollutant in one country may involve increases in other pollutants in the same country or transfers of pollutants to other countries.) And fourth, in most cases where emissions have declined with rising income, the reductions have been due to local institutional reforms, such as environmental legislation and market-based incentives to reduce environmental impacts. But such reforms often ignore international and intergenerational consequences. Where the environmental costs of economic activity are borne by the poor, by future generations, or by other countries, the incentives to correct the problem are likely to be weak. The environmental consequences of rising economic activity may, accordingly, be very mixed.

The solution to environmental degradation lies in such institutional reforms as would compel private users of resources to take account of the social costs of their actions. The bell-shaped relation is a suggestion that this can happen in some cases. It doesn't constitute evidence that it will happen in all cases, nor that it will happen in time to avert the irreversible consequences of growth. I will discuss these matters further in Section 10, where we will see that growth in gross national product is a wrong objective. I will then ask what sort of economic growth we ought to be seeking, if indeed it is economic growth of some kind we ought to seek. In short, we will try to identify an operationally useful index of societal well-being.

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