Transcript Economic Integration, Environment, and Development: Mexico

Trade, Environment, and
Development in Mexico
Kevin P. Gallagher
Global Development and Environment Institute
Tufts University
www.ase.tufts.edu/gdae
Key Points
• Mexico is a perfect laboratory to examine
trade, environment, and development
nexus
• Overall, Mexico’s environment continues
to worsen and is adversely affecting it’s
economy
• Economic integration strategies need to
directly incorporate strong environmental
provisions
Environmental Kuznets Curve
250 -
Pollution per capita
200 150 100 50 00
5000
10000
15000
GDP per Capita
20000
25000
Limits of the EKC
• Empirical evidence is relatively weak
– Limited to criteria air pollutants in developed countries
– Turning points much higher than original estimates
– Hasn’t held 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
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
Environmental Kuznets Curve for SOx?
2,900,000
2,700,000
R2 = 0.4748
SOx Emissions (tons)
2,500,000
2,300,000
2,100,000
1,900,000
1,700,000
1,500,000
4700
4800
4900
5000
5100
5200
GDP per capita ($1985 PPP)
5300
5400
5500
Potential Economic Costs of Waiting
for Kuznets in Mexico
Economic Costs of Future Environmental Damage due to increases in
Criteria Air Pollution in Mexico
GDP per capita
Turning Point Year
Damage Costs to Turning Point
($US billions)
$7,500
$10,000
$15,000
2028
2057
2097
(r=.06)
(r=.03)
79
105
119
114
194
279
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
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
Implications for Policy
• Underscores the need to couple environmental
policy (at the national and international level)
with economic integration
• Strong environmental policy will not necessarily
deter foreign investment
• Ex-post analyses are important to draw lessons
for future trade agreements (US approach to
ERs ignores this).
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
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