Economic development and environmental degradation

BACKGROUND OF STUDY

The quest for economic growth led by industrialization in emerging economies like Brazil, Russia, India and China (BRIC hereafter) has a negative impact on environmental management. It is apparent that rapidly growing economies are causing severe pollution problems in the form of emissions of various forms of gases like the carbon dioxide CO2. A higher growth rate often leads to higher rate of growth of population, rapid industrialization, a greater disposable income, higher standards of living, and increases trade in energy intensive products, which impacts on country’s total emissions (PAPER 2).

Brazil is an ideal candidate to represent the construction of a country’s profile on the relationship between economic development and environmental degradation.

It has energy and environmental characteristics of global importance and is the fifth most populous country in the world. In terms of energy consumption, it is the third largest after United States and Canada and the highest CO2 emitter within the Western Hemisphere. Brazil is endowed with a wide range of energy resource, environmental assets and technologies. The Brazil Amazon rainforest holds 30% of the world’s tropical forest which serves as a habitat for at least 10% of the world’s plant and animal species and acts as a CO2 absorbing mechanism.

Giving Brazil’s exuberant economic growth, the Gross Domestic Product (GDP) in Brazil has been increasing at an annual rate of 2.74 percent and is worth 1575 billion dollars or 2.54% of the world economy, according to the World Bank. The South American Nation is one of the fastest growing emerging economies in the world, with large and growing agricultural, mining, manufacturing and service sectors. Brazil economy ranks highest among all the South American countries and it has also acquired a strong position in global economy Read more: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=BRL#ixzz0t5xx5Dzq.

In 1980s, international attention was given to one of Brazil’s environmental problems which was deforestation of the Amazon caused by high rate of clearing and burning between 1970s and 1980s. Deforestation in the Amazon declined between 1988 and 1991 mainly because of economic crisis. While Desertification, another vital environmental problem in Brazil received international attention after the United Nations June 1992 Earth Summit Conference on Environment and Development held in Rio de Janeiro. Critics suggest that the 1980’s economic crisis aggravated environmental degradation in Brazil due to overexploitation of natural resources, settlement on frail lands in rural and urban areas, and weakened environmental protection. However, on the other hand, reduced economic activity may have lowered pressure on the environment, such as the abovementioned reduced rate of investment in large-scale clearing in the Amazon (ENVIRONMENTwebsite page)..

In this light, environmental economists opine that there are environmental costs that accompany rapid economic growth which causes economic activities to expand. Consequently, this higher consumption rate has side effects in terms of high emission which will lead to global warming, greenhouse effects and destruction of forests. The environmental degradation may worsen the situation of imposing higher costs on the poor by increasing the expenditure of health related issues (PAPER 2).

Environmental policies, such as emission management have become Brazil’s national priority and a major element of the environmental protection programmes. In Brazil, public policies concerning the environment are usually highly developed, although the implementation and the enforcement of environmental laws have not been efficient. Brazil achieved significant institutional advances in environmental policy design and implementation after the Stockholm Conference on the Environment in 1972. In 1981 the National Environment Policy was defined, and the National System for the Environment (Sistema Nacional do Meio Ambiente–Sisnama) was created, with the National Environmental Council (Conselho Nacional do Meio Ambiente–Conama) at its apex (website page).

In 1992 Brazil played a key role at the Earth Summit, not only as its host but also as negotiator on sustainable development agreements, including the conventions on climate and biodiversity. The Ministry of Environment was created in late 1992 and in August 1993, it became the Ministry of Environment and the Legal Amazon and took a more pragmatic approach to environmental problems.(website page).

Based on the Environmental performance Index (2008), Brazil ranked 35th out of the 149 countries compared and attained 67 for environmental health index. Although due to current rapid industrialization programmes, Brazil as an emerging market economy may not be an excellent performer in terms of environmental sustainability measures. Since its dilemma will be more of reducing massive poverty and income inequality while at the same time ensuring safer and sustainable environment, which is costly in the short run (DR KUMO..WEB PAGE). However, Brazil’s has shown its core priority to be meeting the increasing energy demand caused by economic and population growth, and stabilise this effort with environmental priorities and other issues such as energy efficiency and affordability.

The goal of international efforts is to reduce global CO2 emission in order to lessen the adverse effects of climate change. The attainment of this goal depends largely on the dedication of major CO2 emitting nations to meeting the emission targets. In 1990, the major producers of energy-related CO2 emissions were US 23.00%, Japan 5.72% the OECD group 24.00%, Brazil0.94%, Russian Federation 3.80%, India 3.00% and China11.00%. In 2007,US and Japanese emissions came down to 22.00% and 5.00% respectively, while it increased for BRIC economies, China16.00%, India5.00%, Brazil 1.15% and Russia 6.00% (WorldBank,2007). However, these economies have experienced fundamental changes that continue to affect the evolution of regional CO2 output, with undesirable consequences for global mitigation strategies. Although there is evidence of reduced energy consumption associated with the development process, it remains uncertain for emerging economies like Brazil what path economic growth will take; whether it is may transform into rising CO2 emissions over the longer term (PAPER 1).

PROBLEM STATEMENT

Numerous forces drive the relationship between environmental degradation and economic growth, and this subject has been analysed by the Environmental Kuznets Curve (EKC hereafter). The EKC hypothesis was initially proposed by Kuznets (1955) and was restated by Grossman and Krueger (1992) and again in 1995. It states that the level of environment degradation increases with response to economic growth and at a turning point begins to decrease. Thus results in an inverted-U curve, which reflects the relationship between pollution levels and percapita income. The upward movement of the curve reflects the transition of developing countries from an agricultural based economy to a phase of industrialisation. The next segment of the curve is downward sloping and reflects an economic transition to developed economy with a swing towards growth rate stability, improved services and increased trade in industrial goods. In the case of Brazil, the economy is in the phase of precipitous industrialisation which is follow-on of high economic growth piloted by high growth in population, changes in the structure of economic activities and increased investments.

World Bank and environmental economists highly uphold the fact that economic growth is the most effective solution to curing environmental problems and is beneficial for both people and the environment. Thus implies that economic growth increases per capita income which reduces poverty and essentially improves the environment. On contrary other theorists advocate without reservation that economic growth requires more production and consumption activities in order to satisfy human wants, consequently causing more waste, increasing pollution and putting more pressure on environmental resources. This necessitates the need to examine the effect of economic growth on environmental degradation in Brazil (PAPER 2) and how it further affects crucial environmental policies. Therefore, this study seeks to answer the questions: what is the long-run effect of economic growth on environmental degradation? Is there a causality relationship between economic growth and environmental degradation? Should economic growth be maintained as priority and environmental protection a secondary consideration for the future?

OBJECTIVE OF STUDY

The general objective of the study is to assess the nature of the long-run relationship between economic growth and environmental degradation in Brazil. The main objectives are:

To examine whether increases in economic growth are associated with reductions in environmental degradation.

To examine the causal relationship between economic growth and environmental pressure in Brazil. Whether there is a unidirectional relationship as the EKC hypothesis assumes, or bidirectional.

JUSTIFICATION OF STUDY

Numerous empirical studies have been done and most have been based on the cross-country panel data estimation to examine the relationship between economic growth and environmental indicators. Therefore, an individual country’s time series study is a new trend in EKC research, seeing as this can reduce the problems linked with cross-country data. Lindmark (2002) advocates that ”historical studies of individual countries offer an advantage over cross-section approaches in bringing the analyses closer to the dynamic that causes the EKC pattern” (p. 334). Implying that potential suggestion from these cross-country studies offers mainly a general understanding of the variables relationships. Hence minimally aiding direct policy formulation.

The research focus is limited to the Brazilian economy, mainly because it is an open developing economy experiencing substantial economic growth and environmental degradation simultaneously (PAPER 1). Brazil was also selected by Goldman Sachs (2003) as one of the BRIC economies, which could have a larger impact on the world economy than G6 in less than 40years. By 2025 the BRIC could account for over half the size of the G6. The choice of this country is also stimulated by the fact that substantial study has not been delved into thoroughly to examine the relationship between economic growth and environmental quality in Brazil. The research is made on the basis of the environmental Kuznets curve hypothesis, using time series data and co-integration analysis (PAPER 3).

SCOPE OF STUDY

This study attempts to methodically investigate the long-run relationship between pollutant emissions, and economic growth for an open developing country like Brazil, during the period 1960-2004 with the use of available secondary data.

PLAN OF STUDY

The rest of paper is organized as follows: Section 2 presents a comprehensive literature review, Section 3 outlines the econometric models and data sources, the empirical estimates and results are reported in section 4 and Section 5 presents conclusion and recommendation.