Correlation of Environmental Degradation and Economic Development

Posted on Posted in 2014-2015
By Cristine Villaruel, Paolo Magnata, and Gabi Schulze

The state of the earth’s natural resources is depleting and it isn’t changing any time soon. Land degradation costs an estimated $40 billion annually worldwide (“Land Degradation Assessment”) and air pollution in 2010 for the US alone costs as much as $1.7 trillion (“The Cost of Air Pollution: Health Impacts of Road Transport”). And yet, global economic growth seems to remain constant over the past few decades. With the global GDP growth rate of 2.4% and a GDP per capita of $10,3184, it’s hard not to admit that man’s standards of living have grown a lot over time and it is still ever increasing. The advent of the technological revolution has led to vast increases in technological capacity, as seen in technological productivity’s doubling every five years. It’s a new age for man, yet man’s resources are still depleting at an incredibly alarming rate. Despite the apparent urgency, a lot of factors are still being considered before any action is taken.

Global GDP Growth Rate

Fig. 1: World Bank (

Global Per Capita Income (current US$)

Fig. 2: World Bank (

As far as studies have shown, there are three major points of discussion when it comes to correlating the rate of environmental degradation to that of economic development.

1) Increased extraction of natural resources, accumulation of waste and concentration of pollutants will overwhelm the carrying capacity of the biosphere and result to the degradation of the environment and decline in human welfare despite increasing economic development.
(2) The strong correlation between income and environmental protection demonstrates that in the long run increasing levels of economic development will lead to improving environment quality.
(3) Relationship with economic growth may it be positive or negative is not fixed along a country’s development path; indeed it may change sign from positive to negative as a country reaches a level of income at which people demand and afford more efficient infrastructure and a cleaner environment. (Panatoyou, 45)

The proponents of the first perspective say that at the rate at which population, pollution, resources, and economic growth are right now, a social collapse is inevitable. In Meadows and Meadows’ “Limit to Growth,” it is discussed how resources have a limit, or rather, the earth has a fixed carrying capacity. Regardless of what level of technological innovation we may reach, it is only a temporary solution to the underlying problem of how resources are depleting. Even as we create more substitutes and rates of the depletion start to decrease, there will still come a point when the carrying capacity is reached. Once we reach the point where any action that we undertake will inevitably not change the outcome we’ve lost the game of human life. Thus, proponents claim that a steady state equilibrium needs to be instigated. A dynamic state of equilibrium where the standard of living is allowed to reach a certain level, and is then halted, is needed to reduce unnecessary expenditures of resources and a state where population is ideally constant.

What the proponents fail to see is that reaching this stable state equilibrium is quite unrealistic. It not only requires countries to instigate a strict population control policy, but also requires high levels of transnational integration to reach this ideal standard of living. With regard to this, will developing countries really be able to invest possibly inextricably high amounts to raise their standard of living? And would developing countries be willing to give out their share of natural resources, with the assumed lack thereof of these resources in the future? Other factors must also be considered to take this perspective into account however, for the purpose of this article these will not be further discussed.

The second perspective obviously differs from the first one. Proponents of this perspective provide empirical data that show higher levels national income are correlated to active pursuits in the abatement of environmental degradation. One such proponent is Edward Walter and in his book “The Immorality of Limiting Growth,” he heavily criticizes how limiting the global growth rates is completely against human rights. He also delves to an empirical analysis that discusses how world estimates of natural resources are inaccurate, thus making criticisms of the first proposition invalid, and states that with the rate of new and emerging technical substitutes, the lack of natural resources is not even a problem at all. In this case, mineral deposits have seen no significant change although this may be correlated to change in preferences and the demand and supply of these resources over time. However, the fact that these resources are still declining over the assumed world estimates is a problem that even Edward Walter can’t deny. To point out even more extreme stands on this perspective is to say that reducing economic growth will actually lead to lowering the environment quality as well.

The third perspective uses the more common notion for the correlation of environmental degradation and economic growth. It discusses how at different levels development, both the quantity and the intensity of environmental degradation are limited to the impacts of substance economic activity on the resource base and limited to quantities of biodegradable wastes (Panyotou, 45). As agriculture and resource extraction intensify and industrialization takes off, both resource depletion and waste generation accelerate (Panayotou, 45). At higher levels of development, structural change towards information-based industries and services, more efficient technologies, and increased demand for environmental quality result in leveling off and a steady decline in environmental degradation (Panayotou, 46).

Fig. 3: “Economic Development and Environmental Degradation”

This inverted-U relationship between economic development and environmental degradation is been known as the “environmental Kuznet’s curve”.

Grossman and Krueger estimated Environmental Kuznet Curves (EKC) for sulfur dioxide, dark matter (smoke) and suspended particles using the Global Environmental Monitoring System (GEMS) data for 52 cities in 32 countries during the period 1977-1988; per capita GDP data were in purchasing power parity (PPP) terms. For sulfur dioxide and dark matter, they found turning points at $4,000- $5,000 per capita; suspended particles continually declined even at low-income levels. However, at income levels over $10,000-$15,000 all three pollutants began to increase again, a finding which may be an artefact of the cubic equation used in the estimation and the limited number of observations at high-income levels. (Panayotou, 51)

Shafik and Bandyopadhya estimated EKCs for 10 different indicators of environmental degradation, including lack of clean water and sanitation, deforestation, municipal waste, and sulphur oxides and carbon emissions. Their sample includes observations for up to 149 countries during 1960-1990 and their functional specification includes log linear, log quadratic and logarithmic cubic polynomial forms. They found that the lack of clean water and sanitation declined uniformly with increasing incomes and over time, water pollution, municipal waste and carbon emissions increase, and deforestation is independent of income levels. In contrast, air pollutants conform to the EKC hypothesis with turning points at income levels between $300 and $4,000. Panayotou, using cross-section data and a trans-log specification, found similar results for these pollutants, with turning points at income levels ranging from $3,000 to $5,000. (The lower figures are due to the use of official exchange rates rather than PPP rates.) (Panayotou, 50)

Recent studies, using better data and more sophisticated estimation techniques, have obtained turning points for CO2 emissions that, while higher than those of local pollutants, are still within the range of observable income levels. Schmalensee, Stoker and Judson using a spline regression with 10 piece-wise segments and the Holtz-Eakin and Selden data, obtained an inverted-U-shaped relationship between CO2 emissions and income per capita in 1985 PPP dollars. They found negative CO2 emission elasticities with respect to income per capita at the lowest and highest income splines, and a turning point in the range of $10,000 to $17,000 per capita. (Panayotou, 51)

The income-environment relationship is a reduced form function that aims to capture the “net effect” of income on the environment. Thus, certain underlying determinants of environment quality may be unduly circumscribed (Panayotou, 51). Other variables that may be considered to be indicators of environmental degradation that may be correlated to income have not been included, not because they would be of no use, but because the net effect could already be garnered using the analytical and structural models that were already used.

For the sake of the article, the third perspective will be used in further discussions.

Historical Background of Economic Development and Environmental Degradation

The discussion on the world’s history of environmental degradation and development is constantly evolving with new insight on how to properly define our ecological footprint quantitatively. In traditional economics, studies often cite an environmental Kuznets curve to graphically represent the correlation between economic development and the state of the environment, through indicators of environmental degradation. The hypothesis suggests that environmental impact indicators such as Carbon emissions and deforestation are U-shaped functions of income per capita. Simply stated, the Kuznets curve implies that economic growth leads to an increase in pollution levels until a certain threshold is reached, wherein economic development becomes ecologically sustainable and a decrease of pollution is achieved by a state. The logic behind the environmental Kuznets curve or EKC lies in the two assumptions. First, that the initial acceleration of development leads to a rate of resource depletion and waste production that exceeds the natural rate of resource generation. Second, that once a state’s economy is stabilized, the government will be more willing to spend funding on creating environmentally sound technology and enforcing stricter environmental regulations.

However useful it is to simplify the relationship between economic growth and the environment impact, contemporary researchers have begun to criticize the one-dimensionality of the environmental Kuznets curve. There are numerous indicators of the ecologic status of a given location that an EKC equation may represent but the relation of the increase and decrease of pollutants per unit of output with each other is not as easily defined. This issue hinders the academe and policy makers in painting a worldwide picture of the correlation between development and environmental degradation, because these indicators will vary in magnitude of impact depending on the time and location being studied. For example the switch from energy sources like coal that are mostly associated with developing economies towards oil and natural gases means that the pollutants being produced shifts from sulfur to carbon dioxide and solid waste. There is then no guarantee that a developing state’s aggregate waste has declined with the increase of per capita income.

Several factors beyond income must then be considered when plotting out the impact of a specific era’s economic activities on the environment. The historical and regional context of the time frame before the era affects the specific outputs that businesses choose to produce, the type and quantity of energy sources being used, and furthermore the type of environmental degradation that results after this. Technology also becomes an important variable in connecting the relationship of economic development and environmental degradation as advancements may mean either the adoption of ecologically sustainable processes or the further degradation of the environment through cost-effective but damaging business practices.

Agriculture was the first significant attempt by people to alter the environment into producing resources to their will and need. However before the British Agricultural Revolution era from 1750-1850, most of the world engaged in subsistence agriculture or the type of farming that endeavors to produce only enough food to feed the farmer and his family. Any quantity of farming will have some effect on the environment. Agriculture inadvertently disrupted the ecologic balance of environments as more wild land was transformed into farming land. About one tenth of the earth’s land coverage of grass and trees was now producing food and cash crops.

As average income rose with the developing agriculture industry so did the production of waste products associated with farming such as the leaching of nitrogen, phosphorus and heavy metals from fertilizers that began a water contamination problem that still plagues the contemporary world.

The standardization of methods, like the four-field crop rotation, made agriculture more accessible and efficient as a profitable business and a market for agricultural food production grew. Increased economic activity and food production allowed for a social structure and environment that could sustain population growth in developing areas. Not only could households now buy food, but they could also afford certain expenditures such as clothing, furniture and heating in their homes. The demand for other items, lead to the demand for an energy source that was sufficient to meet production needs.

Enter the burgeoning coal mining industry. Coal seemed like a cheap unlimited resource of energy to match the new population’s wants and desires. This is why economic achievements during the Agricultural Revolution were only rivaled by the unprecedented sustained growth that the Industrial Revolution enjoyed. With large-extraction operations beginning not only in Europe but also the Americas, the human world began to have a larger impact on the environment. In the industrial sector, coal burning machines like steam engines, shovels and tractors were helping businessmen earn profit in large volumes while causing problems like soil erosion and leaching. People were increasingly dependent on the fossil fuels for domestic needs and more people began to move into fossil-fueled cities and towns that began to urbanize. By the end of the Industrial Revolution and the Agricultural era, there was a tremendous worldwide economic growth alongside a dramatic leap in global carbon dioxide emissions.

Fig. 4: Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory (2012) International Energy Agency, World Energy Outlook (2012)

Swintek discusses that all wars have some form of impact on the environment. He writes, “Throughout history, armies have burned enemy crops and fields, rivers have been dammed, and water supplies have been poisoned, all in the name of war” (04). Modern warfare however shows convincingly that development again plays an important role in the further degradation of the environment. Despite international efforts to force all conflicting states to forego the use of chemical warfare, technological and industrial sophistication led to greater casualties. The environment is the last thing most states think about at a state of war. In Europe about 49,400 acres of French forest was destroyed due to direct conflict. Timber forests around the Northern Hemisphere were destroyed to provide wood for armies. On an agricultural note, all farmers were forced to produce enough food for the growing armies, rendering many lands infertile from the loss of nutrients. While statistics have yet to show the impact World War I has had on the environment, multiple accounts of illnesses caused by water contamination, patches of land destroyed deforestation and fires, and of course the remnants and spread of pollutants from the poison gas heavily used by all armies, lead researchers to surmise the war in all forms was largely detrimental to every living organism at large, including those of the natural world.

World War II and the events following it helped the world regain an awareness of the repercussions of war on not only human geopolitics but also the environment. The ecological balance disrupted by World War I wasn’t fully recovered when World War II happened. This time, environmental damage touched almost all parts of the globe with Europe, the Pacific Islands and Japan bearing the brunt of the destruction. In Europe, the environmental damage was mostly caused by the Nazi’s tactical strategy of destroying or taking all resources as they moved from country to country. The starvation strategy is clearly seen when the Nazi army flooded Netherland’s farmlands with salt water. By doing this, nearly 17 percent of the Dutch’s farmland and their food output was destroyed (Lanier-Graham 24).

The Allied forces countered these attacks with similar strategies that also destroyed the environment in their wake. They destroyed dams and other important features in developing Germanic areas to stop the production of not only food but also weapons needed by armies (Lanier-Graham 24).

While the European damages were mostly towards agricultural lands, the Pacific Islands experienced degradation of wild marine and land ecosystems. Many of these Pacific Islands are often considered hotspots of biodiversity as their unique geographical location has allowed the growth of many endemic species. Tanks, flamethrowers and other weapons destroyed this environment and the organisms it sustained as people battled to conquer or defend the island. Conquerors stripped the islands of its resources to strengthen their position in the area, airfields and docks not only called for deforestation, but also the destruction of coral reefs. Marine life of the Pacific suffered a great deal. Over 220,000 pounds of mustard gas and gallons of oil are said to be sitting on the ocean floor as remnants of World War II.

No discussion on World War II would be complete without citing the nuclear bombs that were dropped on Hiroshima and Nagasaki. While the immediate effects of the nuclear radiation on people were heavily documented, the environment suffered greatly as well. Radiation found its way into the surrounding land and water, rendering the entire area lifeless. The incidences of acid rain and erosion grew. Even today, the Japan still feels the effects of nuclear warfare.

Development and environmental degradation still move at an accelerated pace today. According to the United Nations Environment Programme report: 1.1 billion acres of tropical forest were cleared between 1960 and 1990, a great leap considering the rate of deforestation worldwide during previous times. 75% of fish in the world have either been depleted or recovering from exploitation.

Aside from resource depletion, pollutant outputs still continue to plague the world. Because development differs in pace and methods of progress in different places, countries have begun to have different kinds of wastes and pollutants. For example, China as growing economy depends on a heavily inefficient fossil fuel source for expansion. Possibly in a contradiction of the Kuznets curve, a 2012 study has found that there is no strong economic incentive for China to develop into a more ecologically sustainable society. In most of the developed Western civilization, countries have managed to mitigate their own ecological footprint by discouraging the proliferation of environmentally hazardous industries and inefficient resource allocation. However, many of these countries have begun to outsource these industries to middle to low income developing countries where resources including human capital are readily available for a cheap price. While development for these states has resulted into an improvement in their own location, it is hard to say that this inequality will result into a cleaner more sustainable world.

Policies and Efficacy of Policy Application

Using the results and assumptions from the Environment Kuznet Curves (EKC), policy application would include varying environmental policies on degradation abatement depending on the stages of economic development. At earlier stages, these policies would be of much use because economic activity would rely on agriculture and resource extraction. As economic activity shifts to information-based industries, services, and improved technologies, these policies become less effective because of general societal inclination (Panoyotou, 46).

In the Philippines, a developing country, the service sector and the agricultural sector take a big chunk of the labor force, at 54.1% and 30.4% respectively (“Employment Rate in January 2013 …”). Last 2012, the World Bank gave the Philippines a lower middle-income level, with a GDP per capita of $2,587. Environmental policies at this stage of development and GDP per capita aren’t expected to be that effective because the economy is still at the transition stage and hasn’t even reached the turning point. Even though the service sector is taking over a huge chunk of the labor force, environmental issues are still a big problem in the Philippines. A report from the World Bank last 2009 indicated that even though the Philippines has sound and good environmental policies, implementation of these policies at the institutional level seems to have become a major hindrance. These hindrances may be overcome through structural reforms and a shift of status quo in the political economy (The Philippines: Country Environmental Analysis). All of which, are expected to be present once it reaches a higher stage of development and once society inclines more to environment degradation abatement.

In a more global scale environmental policies in general don’t seem to be doing that much at all. One such example is “The Kyoto Protocol”, which went into effect in 2005 and was to expire at the end of 2012, set a binding target for 37 industrialized countries to cut their greenhouse gas emissions by 5.2 percent, from 1990 levels, by 2012. But it failed to achieve its goal (Osava, “The Unsustainable Political Deficiencies of Environmentalism”). Although, credit still has to be given to these policies as they show the general efforts and persistence of countries in addressing environmental concerns, the lack of incentives to successfully implement these policies implies the general problem—the inclination to address these concerns isn’t just enough to issue a sense of urgency.

The United Nations has been having environmental summits over the years, and yet they still have to prove the results of having these summits. It may be true that they are trying to raise awareness, yet the implementation of the policies they support and create is still subject to political backing. Structural reforms, as the EKC suggests, are truly of great importance in the practical application of these environmental policies. If these studies truly suggest how the general reaction of countries will be with economic growth and environmental degradation, then economic development for developing countries and better and stricter abatement policies in high income and more developed countries are necessary.

Hurdles and the Future of Sustainable Growth

Years and years of economic research have been devoted to discovering the major factors that affect economic development. Sustainable economic development is a goal that economists have strived for since time immemorial, but what is sustainable economic development anyway? As defined by economists, sustainable economic development is a form of economic growth in which resources are utilized to meet human needs while preserving the environment. The concept of sustainable economic development constructs a scenario wherein development meets the needs of the present while not hurting the ability of future generations to meet their own respective needs. It ultimately aims to minimize the use of natural resources and effects of environmental degradation, while being able to increase the standard of living and decrease poverty.

This sector of economy, which produces commodities and also contributes to the preservation of the environment, has been widely regarded as the key to developing their economy. This has been given priority by countries like the United States. During the 2008 U.S. presidential campaign, they were labelled as “key priorities” by the Executive and Legislative branches of the Federal Government. The United States has recognized the importance of sustainable development and has since passed laws such as the American Recovery and Reinvestment Act and the Green Jobs Act which mainly focus on energy efficiency and renewable energy. According to a study conducted by the Brookings Institution done in 2011, although the growth of a clean economy was slower than the national economy, it performed better during the recession and provided salaries that were higher by up to 13%.

Although sustainable development is viable, it will require a big change from how things used to be and still are: from an old economy that produces much pollution and is environmentally disruptive, to a new economy that is resource-efficient and environmentally friendly. Such transitions are not easy to achieve. The old economy not only prevents us from achieving sustainable development but also adds problems for future generations to deal with, such as acid rain and climate change. Transitioning to a new and more resource-friendly economy has the potential to provide prosperity, a nourishing environment and a more equitable society.

The world has recognized the importance of sustainable development. In September 2000, world leaders forged an agreement that revolves around the importance of poverty reduction and human development. The idea of a sustainable economic development however, still has many hurdles to overcome before it can be achieved.

According to the Department of Economic and Social Affairs of the United Nations, one of the problems that hinder sustainable economic development is climate change. Being a force of nature, it is highly unpredictable thus lacks adequate safeguards against it. Hunger and malnourishment are also problems; although there is improvement they are still prominent problems today. Income inequality has also been cited as a major problem. Income inequality has reached extremely high levels and has been classified as a major contributor to social conflict. Rapid urbanization is also a major problem and is need of some improvements. There need to be changes in how urban development is handled. There is also a lack of energy to accommodate the needs of households and ultimately becomes available only to those who have the capacity to pay for it. Finally, according to the Department, there is a need to prevent the recurrence of financial crises and economies have to be geared towards investing long-term finances needed for sustainable development.

There is a need for collaboration between both public and private sectors. There is also skepticism about fulfilling environmental goals; some practitioners feel that if such challenges were addressed then it would just be a monetary drain rather than an economic benefit. There is also a lack of demand for newly-trained and skilled workers although steps are being taken to promote green employment like the Green Jobs Conference which was promoted by DOLE and various departments of the government.

The Philippine Council for Sustainable Development (PCSD), which is led by the National Economic and Development Authority, has already started making plans for the future. It is formulating the Philippine Long-Term Development Action Plan which will take effect from 2016 to 2046. This will be aligned to the current Philippine Development Plan 2011-2016 which serves as a guide in order to maximize the utility of the development plan. The development plans adopt a framework of inclusive growth that aims to improve economic decision making, generate jobs and reduce poverty. The PCSD also want to promote social cohesion, ecological integrity and institutionalizing good governance, citing them as important factors in sustainable development.


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