the demographic transition and the ...• this is the prototypical relationship at the basis of the...

THE DEMOGRAPHIC TRANSITION AND THE THE DEMOGRAPHIC TRANSITION AND THE ECOLOGICAL TRANSITION: ENRICHING THE ECOLOGICAL TRANSITION: ENRICHING THE

ENVIRONMENTAL KUZNETS CURVE HYPOTHESISENVIRONMENTAL KUZNETS CURVE HYPOTHESIS

MarzioMarzio GaleottiGaleotti((UniversitUniversitàà didi Milano, IEFEMilano, IEFE--BocconiBocconi))

Alessandro Alessandro LanzaLanza((EniEni Corporate University Corporate University S.p.AS.p.A.).)

Maria Carla Maria Carla LudovicaLudovica PiccoliPiccoli((EnelEnel S.p.AS.p.A.).)

This paper is about:

(1) Environmental Quality/Degradation

(2) Income/Economic Growth

(3) Population

These are fundamental aspects of SustainableSustainable DevelopmentDevelopment (SD)(SD)

In this presentation I will briefly talk about:

- (I) SD: alternative ways to represent the interrelationsbetween (1)-(2)-(3)

- (II) Literature on (1)-(2)-(3) and empirical results

- (III) The two “Transitions” and this paper’s empirical results

(I) (I) SustainableSustainable DevelopmentDevelopment (SD)(SD)

THE “CAPITAL” BASE OF SD

Km

Kh

Kn

Ks

Totalcapitalassets

TK

∆(TK/POP)/∆T≥ 0

Sustainable Development

Technological Change Population Growth

(+) (-)

Populationincreases

Environmentworsens

Povertyincreases

THE POVERTY/POPULATION/ENVIRONMENTAL DEGRADATION “TRAP”

And Pollution

ConsumingenergyConsumingenergy

Humanbeings

(Population)

Humanbeings

(Population)

Pollution

Energy

Energy

Income

Income

PopulationX X=Pollution X Population

Generateincome

Generateincome

THE KAYA IDENTITY

Wide differences between advanced countries and developing countries : the CO2 case (*)

CO2

Population

CO2

Energy

Energy

Income (GDP)

Income GDP)

Popolazionex x=

(*) Source: IEA 2009 Key World Energy Indicators – 2007 data

World 4.28 = 2.41 x 0.20 x 9.29OECD 10.97 = 2.37 x 0.17 x 27.31Latin America 2.21 = 1.85 x 0.15 x 8.06Asia 1,35 = 2.11 x 0.17 x 3.86Africa 0.92 = 1.40 x 0.27 x 2.48China 4.58 = 3.08 x 0.19 x 7.65

“The effect on global emissions of the decrease in global energy The effect on global emissions of the decrease in global energy intensity (intensity (--33%) 33%) during 1970 to 2004 has been smaller than the combined effect ofduring 1970 to 2004 has been smaller than the combined effect of global income global income growth (77 %) and global population growth (69%) with the resultgrowth (77 %) and global population growth (69%) with the result of increasing energyof increasing energy--related CO2 emissionsrelated CO2 emissions”” (WGIII contribution to the IPCC AR4, 2007).(WGIII contribution to the IPCC AR4, 2007).

THE KAYA IDENTITY

1.

The cause ofpollution ispopulationgrowth

POPULATIONGROWTH

ECONOMICGROWTH

2.The cause ofpollution iseconomicgrowth

Consumption of naturalresources

Waste discharge

Consumption of naturalresources

Waste discharge

WHY IS THIS HAPPENING? TWO STYLIZED VERSIONS

Distorted lifestylesDistorted lifestyles

(II) (II) LiteratureLiterature and and EmpiricalEmpirical ResultsResults

• Highly debated, yet comparatively under-researched empirically

• Vast number of published articles on the link population - environmental changes appeared in the last few decades (Lutz, Prskawet, and Sanderson, 2002)

• Particularly lacking are systematic empirical studies examining comprehensively the population-environment relationship at the global level

�Neo-Malthusians – Pessimists•Ever since Malthus, Ricardo and Mill, concern that rising population would deplete agricultural and other natural resources and significantly contribute to environmental degradation (Ehrlich, 1968; Meadows, Meadows, Zahn, and Milling, 1972). Neo-Malthusians like Ehrlich and Holdren (1971), Kahn, Brown, and Martel (1976) and Ehrlich and Ehrlich (1990) regarded population growth as a significant, if not the major, factor behind environmental degradation.

1. ENVIRONMENT AND POPULATION

�Cornucopians – Optimists•Boserup (1965) and later Simon (1981, 1996) argued instead that a rising population needs not lead to more depletion as high population densities provide fertile ground for institutional and technological innovations to overcome any apparent resource constraint.

•Commoner, Corr, Stamler (1971) maintained that environmental degradation is not largely due to population growth.

•The so-called cornucopians regard human ingenuity as the ‘ultimate resource’. Since more people mean that problems are tackled by more brains, a larger population renders more likely the scientific, technological and institutional progress necessary to overcome any apparent environmental problem.

Although the issue can ultimately only be settled at the empirical level, the above contributions have been largely speculative. It was only in the mid-1990s that population was accounted for in the empirical work on the relationship between environmental quality/degradation and income.

1. ENVIRONMENT AND POPULATION

The relationship between environmental degradation and income/GDP has been traditionally investigated within the framework of the so-called Environmental Kuznets Curve (EKC). The EKC is an empirical description of the relationship between measures of economic growth and environmental quality

2. ENVIRONMENT AND INCOME/ECONOMIC GROWTH

After Simon Kuznets who in the 1940s empirically identified an inverted-U historic relationship between income distribution and income growth, dubbed “Kuznets Curve”

Main idea : starting from low (per capita) income levels, (per capita) emissions or concentrations of pollutant tend to increase but at a slower pace. After a certain level of income (which typically differs across pollutants) – the “turning point” - emissions or concentrations start to decline as income further increases.

33

2210 xxxy αααα +++=

Two main explanations :• (1) Kuznets behavior is an income effect and results from the environment being a luxury

good. Early in the economic development process of a country individuals are unwilling to trade consumption for investment in environmental protection: environmental quality declines as a result. Once individuals reach a given level of consumption (or income), they begin to demand increasing investments in an improved environment.

• (2) EKC as an expression of “stages of economic growth”. Countries make a transition from agriculture-based to industry and then post-industrial service-based systems. The transition from an agricultural to an industrial economy results in increasing environmental degradation as mass production and consumption grow. The transition from an industrial to a service-based economy is instead assumed to result in decreasing degradation due to the lower environmental impact of service industries.

• Powerful implication : Delinking or Decoupling – Growth is both cause and cure of environmental problem. Press on the growth pedal.

2. ENVIRONMENTAL KUZNETS CURVE: A SHORT DETOUR

• Underlying EKC there is a long-standing debate. In the early phases, about thirty years ago, the prevailing view was that economic growth was a threat to the environment. The world will not be able to sustain growth indefinitely without running into resource constraints or despoiling the environment beyond repair. No room for endless economic development, rather we should start thinking in terms of a zero-growth situation. This was primarily the view of a number of respected social and physical scientists belonging to the Club of Rome: The Limits to Growth (1972)

• At the opposite extreme position according to which the fastest road to environmental improvement is along the path of economic growth:

“The strong correlation between incomes and the extent to which environmental protection measures are adopted demonstrate that in the longer run the surest way to improve your environment is to become rich” (Beckerman, 1992)


• EKC summarizes the empirical relationship between environment and economic development

• Admittedly relationship very complex, depending upon a host of different factors, including: size of the economy, sectoral structure (including the composition of energy demand), vintage of the technology, demand for environmental quality, level (and quality) of environmental protection expenditures. All these aspects are interrelated.

• Above considerations are the likely explanation of why this research field has been explored firstly on empirical grounds and only afterwards with the help of theoretical models.

• Theoretical contributions belong to four major categories:- Optimal growth models - e.g. Tahvonen and Kuuluvainen (1994), Selden and Song (1995),

Stokey (1998)- Models of the environment as a factor of production - Lopez (1994), Chichilinsky (1994).- Endogenous growth models - Lighthard and van der Ploeg (1994), Bovenberg and

Smulders (1995, 1996), Stokey (1998).- Other macroeconomic models, include overlapping generation models – e.g. John and

Pecchenino (1994) , Jones and Manuelli (2000), and simple static models – e.g. Stokey(1998), Andreoni and Levinson (2001)


• As noted by Shafik (1994), the above debate lacked empirical evidence to support one argument or the other, remaining on a purely theoretical basis for a long time. The main reason was the unavailability of environmental data for many years. However, it also reflected the difficulty of defining how to measure environmental quality. In the absence of a single criterion of environmental quality, several indicators of environmental degradation were used to measure the impact of economic growth on the environment. Obviously, the problem is that the use of various indicators implies the possibility of ambiguous answers of to the impact of growth on environment.

• In a spat of initial influential studies, twenty years later the beginning of the debate Grossman and Krueger (1991, 1995), Shafik and Bandyopadhyay (1992), Panayotou (1993, 1995), Shafik (1994), Selden and Song (1994) provided first empirical implementation of the idea.


CO 2

SO 2

SPM

NO X

BO D/M SW

Lack of C lean Water

Lack of Urban

Sanitation

D eforestation

Shafik and Bandyopadhyay (1992) Panayotou (1993) Grossman and Krueger (1993) Shafik (1994) Selden and Song (1994) Grossman and Krueger (1995)


CO 2

SO 2

SPM

NO X

BOD /M SW

Cole, Rayner, and Bates (1997) Schmalensee, Stoker, and Judson (1998) Vincent (1997) Carson, Jeon, and M cCubbin (1997) Bruyn, Bergh, and Opschoor (1998) Islam, Vincent, and Panayotou (1999) Panayotou, Sachs, and Peterson (1999)

Notes:

CO 2 = Carbon dioxide SO 2 = Sulphur dioxide SPM = Suspended Particulate M atter N O X = N itrogen Oxides BOD = B iochemical O xygen D emand M SW = M unicipal Solid W aste * BOB ** M SW n.a. = not available: the study did not cover this environmental indicator

Turning Points:

The fist two digits are to multiplied by 1,000 ($85) means that per capita GDP is expressed in 1985 U .S. dollars ($85p) means that per capita GD P is expressed in 1985 U .S. dollars on a PPP basis


Following Panayotou (2000) let:

(1)

• Pessimists/Neo-Malthusians view: population elasticity is at least one if not higher• Optimists/Cornucopians view: population elasticity is certainly below one, unlikely to be

statistically different from zero and possibly even negative

• Empirical studies explicitly examining link population - pollution in a systematic quantitative manner are very few in number (Cramer, 1998, 2002; Cramer and Cheney, 2000; Dietz and Rosa, 1994, 1997; York, Rosa and Dietz, 2003; Shi, 2003; Cole and Neumayer, 2006).

Assume f to be linear homogenous in its arguments:

(2)

ENVIRONMENTAL DEGRADATION, INCOME, POPULATION:EMPIRICAL ASPECTS

• To best capture demographic movements necessary long time series.

• Data for emissions of carbon dioxide (million metric tons) are available from the Oak Ridge National Laboratory’s CDIAC from 1861 through 2006. These data are made available by ENERDATA together with GDP expressed in PPP 2000 millions USD and population in thousand people. Historical data on population and GDP were originally developed in three books by Maddison (1995, 2001, 2003). Historical data on carbon dioxide emissions are from Boden, Marland, and Andres (2009).

• Because of the length of the sample the number of countries considered has to be restricted to 17 OECD nations. These are: The country are: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, UK.

• The examined variables are expressed in log form and estimation is performed for each country using ordinary least squares (OLS). A panel estimation with fixed country effects is also performed.

DATA

ENVIRONMENTAL KUZNETS CURVE: EMPIRICAL RESULTS - QUADRATIC

ENVIRONMENTAL KUZNETS CURVE: EMPIRICAL RESULTS - CUBIC

• This is the prototypical relationship at the basis of the “Environmental Kuznets Curve”hypothesis. According to it, GDP and population are the two forces that affect the level of pollution in the empirical reduced-form relationship describing the EKC

• However, population does not play an independent role relative to income; EKC is invariably stated in per capita terms, to capture the idea that two countries with the same GDP but with different number of inhabitants will not in general produce the same amount of pollution

• Relative to (1), expression (2) contains a testable assumption, as it imposes linear homogeneity. One way to assess whether population plays a role in addition to income is to test for homogeneity of (1) by looking at the statistical significance of the population regressor in:

• (3)

ENVIRONMENTAL DEGRADATION, INCOME, POPULATION:EMPIRICAL ASPECTS

ENVIRONMENTAL KUZNETS CURVE: EMPIRICAL RESULTS – THE ROLE OF POPULATION - QUADRATIC

ENVIRONMENTAL KUZNETS CURVE: EMPIRICAL RESULTS – THE ROLE OF POPULATION - CUBIC

(III) The (III) The ““TransitionsTransitions”” and and ThisThis PaperPaper’’s s EmpiricalEmpirical ResultsResults

Pollutionper capita

GDP/POP

Incipient pollution

Abatement

Pollutionper capita

GDP/POP

Actualpollution

THE ECOLOGICAL TRANSTION

ENVIRONMENTALKUZNETS

CURVE(EKC)

Phase I Phase II Phase III

Percapita GDP

Death rate

Birth rate

Percapita GDP

PopulationGrowth

THE DEMOGRAPHIC TRANSTION

Population

PopulationGrowth

DEMOGRAPHICKUZNETS

CURVE(DKC)

• Phase I : Life expectancy low and fluctuates widely as land, food and clean water scarcity leads to famines and epidemics. Mortality fluctuates more than fertility. Population of pre-modern society rises ti the point where living standards are low enough to bring to equilibrium high birth and death rates

• Phase II : first, death rates drop quickly due to productivity growth (mainly agriculture) removing economy from brink of starvation and due to technical advances in public health and medical care. These reduce deaths but not directly alter reproductive behavior. Subsequently fertility declines faster than mortality, largely driven by soicio-economic factors as rising levels of education, real income and liìfe expectancy as well as higher female labor force participation rates.

• Phase III : stable population at high living standards

THE DEMOGRAPHIC TRANSTION

DEMOGRAPHIC KUZNETS CURVE: EMPIRICAL RESULTS - QUADRATIC

DEMOGRAPHIC KUZNETS CURVE: EMPIRICAL RESULTS - CUBIC

GDP Pro-capite per gruppi di reddito (migliaia US$)

Birth rate

Death rate

Incipient pollution1.6 billions

1.2

Source: R. Baldwin (1995), “Does sustainability require growth?”

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Abatement

Phase I Phase II Phase III

THE TWO TRANSTIONS TOGETHER (BALDWIN, 1995)

More that 50% of population is currently in Phase II of the demographic transition (explosivephase) and in a phase of the environmental one in which percapita pollution is still low

Moving from Phase II to Phase III of the demographic transition will bring about a reduction ofthe increase in pollution caused by population and a strong environmental impact

Policy implications

� People produce pollution and severe poverty generates population at unsustainablerate

� Sustainability necessitates per capita income growth, at least among the world’s poor

1992 Earth Summit, Rio de Janeiro - Declaration

Principle 8: “… States should reduce and eliminate unsustainable patterns of production and consumption and promote appropriate demographic policies”

SUMMARY OF THE TRANSTIONS AND POLICY IMPLICATIONS

• R. Baldwin (1995), “Does Sustainability Require Gro wth?”

• With the exception of Baldwin (1995) none of the studies mentioned so far has investigated the nexus pollution, environmental degradation, and income within the conceptual framework of the two transitions: the demographic and the ecological one.

• Theoretical papers:scant

- endogenous growth model with pollution and abatement by Aznar-Marquez and Tamarit (2005)

- overlapping generations model by Marsiglio (2010)

• Incorporate the Demographic Transition (DKC) into the Ecological Transition (EKC): get an “Enriched” Environmental Kuznets Curve to get:


• whence:

• and:


“ENRICHED” ENVIRONMENTAL KUZNETS CURVE: EMPIRICAL RESULTS

• Although the role of population is accounted for in empirical investigations of the EKC hypothesis, there is more to it

• Population does not merely play a normalizing role for the income level of a country. Rather, countries undergo over time a demographic transition as their economic development progresses, in a manner similar to the ecological transition described by the EKC.

• Although the discussion of the impact of population growth on the quality of the environment is not new, Richard Baldwin (1995)’s insight has been to bring together demographic and environmental transitions within the analysis of the nexus between environment – income -population. It has been on that basis that he could conclude that economic growth is necessary for sustainability, and that demographic policies such as birth control measures can help toward that end

• Baldwin’s policy implications have been based on very valuable speculative considerations. What in a sense was lacking was statistical support. This is what the present paper has purported to do.

CONCLUDING REMARKS

• We have provided an econometric analysis of Demographic and Ecological Transitions.Although they could be investigated separately, we have incorporated the insights from the former into the latter to obtain an “enriched” Environmental Kuznets Curve hypothesis.

• This specification interestingly shows that the rate of population growth enters as an extra term the standard EKC formulation.

• It remains, however, as a preliminary step to understand which and how important the interrelations between the two transitions are, the implications one has for the other, possibly adopting a regional perspective, typically between rich and poor countries.

• A second important aspect to recall is that inverted-U EKCs may not hold for all pollutants and that the evidence in this respect is mixed. This holds in principle also for the demographic transition.

• A third caveat refers to the fact the EKCs are in general effective ways to summarize ex-post correlations, but they cannot be used to draw policy implications such as, say, unconditional and accelerated economic growth. Analogous considerations could be made for unconditional population growth!

SUMMARY OF THE TRANSTIONS AND POLICY IMPLICATIONS

• Galeotti, M., A.Lanza and M.C.L. Piccoli (2010),“The Demographic Transition and the Ecological Transition: Enriching the Environmental Kuznets Curve Hypothesis”, mimeo, January 2010

• Galeotti, M., A.Lanza and M.Manera (2009), “On the Robustness of Robustness Checks on the Environmental Kuznets Curve”, Environment and Resource Economics(2009) 42, 551-574

• Galeotti, M. (2007),“Economic Growth and the Quality of the Environment: Taking Stock”, Environment, Development and Sustainability, 9, 427-454

• Galeotti, M., A.Lanza, and F.Pauli (2006),“Reassessing the Environmental Kuznets Curve for CO2 Emissions: A Robustness Exercise”, Ecological Economics, 57, 152-163

• Galeotti, M. and A.Lanza (2005),“Desperately Seeking Environmental Kuznets”, Environmental Modelling and Software, 20, 1379-1388

• Galeotti, M. (2003),“Environment and Economic Growth: Is Technical Change the Key to Decoupling?”, Working Paper N. 90.2003

• Galeotti, M. and A.Lanza (1999),“Richer and Cleaner? A Study on Carbon Dioxide Emissions by Developing Countries”, Energy Policy, 27, 565-573

the demographic transition and the ...• this is the prototypical relationship at the basis of the...

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