Transcript Economic Integration, Environment, and Development: Mexico

Economic Integration,
Environment, and Development:
Mexico Before and After NAFTA
Kevin P. Gallagher
Global Development and Environment Institute
Tufts University
www.ase.tufts.edu/gdae
Overview of Presentation
• To what extent has economic integration affected levels
of environmental degradation in Mexico?
– Is there an Environmental Kuznets Curve for Mexico?
– Is Mexico a Pollution Haven?
• Implications for assessments, theory and policy
• Suggestions for further research
Composition of Mexican Exports, 1981 to 2000
0.9
NAFTA
0.8
Manufactures
Apertura
Fraction of total Exports
0.7
El Pacto
0.6
0.5
`
0.4
0.3
0.2
Oil
0.1
0
Agriculture
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Environmental Kuznets Curve
250 -
Pollution per capita
200 150 100 50 00
5000
10000
15000
GDP per Capita
20000
25000
Environmental Kuznets Curve
• Scale Effects: if pollution per unit of output is
constant but the scale of output increases then
pollution will increase as well
• Composition Effects: if pollution per unit of
output remains unchanged but the sectoral
composition of the economy shifts toward
cleaner or dirtier economic activity
• Technique Effects: reductions in pollution per
unit of output due to technological change and
transfer and/or rising incomes
Problems with the EKC
• Empirical evidence is relatively weak
– Limited to criteria air pollutants in developed countries
– Turning points much higher than original estimates
– Doesn’t hold for single country trajectories
• Damage leading to turning point could be
irreversible or too costly to clean up
• Drawing single-country development lessons
from cross-sectional evidence is questionable
EKC for SOx?
2,900,000
2,700,000
R2 = 0.6653
2,500,000
Pollution
2,300,000
2,100,000
1,900,000
1,700,000
1,500,000
4700
4800
4900
5000
5100
5200
Income
5300
5400
5500
5600
5700
EKC for Carbon Dioxide? 1970 -2000
120,000
Carbon Dioxide Emissions
100,000
80,000
60,000
40,000
20,000
0
3,500
4,000
4,500
5,000
GDP per capita
5,500
6,000
Is Mexico a Pollution Haven?
Share of Dirty Industry in National Manufacturing
Mexico
production
employment
1988
1994
1998
30.1%
7.9%
23.1%
6.3%
26.5%
5.9%
17.0%
11.3%
15.1%
11.2%
14.7%
11.2%
US
production
employment
Yit=β1+β2Pit+…
• Y variables (84-99 and post-NAFTA)
– Growth in Mexican exports
– Growth in Mexican production
– Growth in Mexican export share of US
consumption
• P variables
– Marginal abatements costs in the US
– Gap in Mexico/US pollution intensity
Mexican environmental policy
has been inadequate
• Established key environmental laws and
institutions
• Spending on environmental policy shrinking
• Plant-level environmental inspections declining
• “Side-agreement” institutions extremely limited
Real Spending on Environmental Protection in
Mexico
250.00
200.00
1985=100
150.00
100.00
50.00
0.00
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Plant-Level Environmental Inspections in Mexico
18000
16000
Number of Inspections
14000
12000
10000
8000
6000
4000
2000
0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Side Agreement Limited
• $3 million budgeted for Mexico dwarfed by economic
costs of environmental degradation
• Serves as interesting “pilot project” for serious effort
–
–
–
–
Citizen submissions
Research
Technical cooperation (PRTR)
Funds for clean development (FIPREV, NAFEC)
• Environmental components of trade agreements postNAFTA are weaker than NAFTA”S
Potential Economic Costs of Waiting
for Kuznets in Mexico
Economic Costs of Future Environmental Damage due to increases in
Criteria Air Pollution in Mexico
GDP per capita
Turning Point Year
Damage Costs to Turning Point
($US billions)
$7,500
$10,000
$15,000
2028
2057
2097
(r=.06)
(r=.03)
79
105
119
114
194
279
Summary of Findings
• No EKC-like relationship in Mexico (at
least for now)
• Mexico is not a pollution haven for
pollution-intensive US manufacturing firms
• Mexican government is not adequately
addressing the market failures resulting
from economic transformation
• International institutions not filling gap
made by integration process
Implications for Assessment
• Ex-post analyses have ex-ante lessons:
liberalization won’t automatically improve
or worsen the environment.
• Need to move beyond asking whether
economic integration is “good” or “bad” for
environment
• Need more sector-based analyses to
pinpoint environmental effects
Implications for Theory
• The role of the nation-state in the
economic integration process
• Need for a pro-active state in addressing
negative environmental externalities that
coincide with the integration process
Implications for Policy
• Without the proper environmental institutions and
policies in place, liberalization may worsen
environmental conditions
• Strong environmental policy is justified on economic
grounds
• Strong environmental policy will not deter foreign
investment flows to developing countries
• Strong environmental policy will not cause developed
country firms to flee their countries (nor shed jobs)
• Substantial international financing can supplement
developing country environmental goals
Need for Further Research
• Need for time series data on levels of pollution
• Complement “top down” analysis with a
“bottom up” approach that examines individual
firms and sectors
• Firm-level case studies on location decisions,
technology use and transfer, and
environmental compliance
P=S+C+T
• P = level of pollution
• S=Scale
Sit=Pib(Ymt/Ymb -1)
• C=Composition
Cit=Pib((Yit/Yib) – (Ymt/Ymb)
• T=Technology?
)
NET Pollution in Mexican Manufacturing
1984 to 1998
(tons)
PT
scale
composition
net
12,966.11
-2,813.20
10,152.91
SOx
scale
composition
net
23,614.27
-14,152.79
9,461.48
NOx
scale
composition
net
15,965.74
181.22
16,146.96
Harmonization Index
Pollution per unit of output in Mexico divided by US equivalent
Orders of magnitude
100
10
1
Rubber
Pulp and
Paper
Automotive
Chemicals
Cleaner than in US
0.1
Beverages
Iron and
Steel
Aluminum
Cement
The Economics of Pollution Intensity: A Hypothesis
Capital
intensity
Labor
intensity
Iron and Steel
Assembly?
Core technology
Pulp and Paper?
Textiles
End-of-pipe technology
Environmental Kuznets Curve for Mexico?
200
175
Pollution: 1985=100
Soil Erosion (tons)
Solid Waste (tons)
150
Water Pollution (mi
M3)
125
Air Pollution (tons)
100
75
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Table 7.1: Pollution Intensity of the Mexican Economy
180
160
1985=100
140
soil erosion
solid waste
120
water pollution
air pollution
100
80
60
1985
1986
1987
1988
1989
1990
1991
1992
Year
1993
1994
1995
1996
1997
1998
Criteria Air Pollution in Mexican Manufacturing
Table 5.4: Changes in Net Pollution, 1984 to 1998
net pollution (tons)
(84-98)
88-98
94-98
PT
scale
composition
net
12,966
-2,813
10,153
9,998
-3,117
6,881
18,426
-1,878
16,548
SOx
scale
composition
net
23,614
-14,153
9,461
18,209
-16,330
1,879
33,559
-2,274
31,284
NOx
scale
composition
net
15,966
181
16,147
12,311
-2,787
9,525
22,689
2,390
25,079
Is Mexico a Pollution Haven?
Table 4.3: Regression Results
Dependent Variables
84-99
Growth in Mexican Exports
Growth Mexican Production
Growth in Mexican Export Share
of US Consumption
Model 1
Independent Variable:
Abatment Costs
B
p values
Model 2
Independent Variable:
Mexico-US intensity ratio
adj R
2
B
p values
adj R
2
0.679
-0.119
0.387
0.792
0.04
0.03
-0.00007
-0.00005
0.303
0.139
0.19
0.001
0.399
0.648
0.04
-0.00006
0.496
0.14
-3.82
-1.204
0.577
0.401
0.04
0.03
-0.003
0.00006
0.637
0.603
0.03
0.04
-3.845
0.548
27
0.03
-0.003
0.592
27
0.003
post-NAFTA
Growth in Mexican Exports
Growth Mexican Production
Growth in Mexican Export Share
of US Consumption
N