Biodiversity Loss and Economic Growth: A Cross-Country Analysis

By Asafu-Adjaye, John | Contemporary Economic Policy, April 2003 | Go to article overview

Biodiversity Loss and Economic Growth: A Cross-Country Analysis


Asafu-Adjaye, John, Contemporary Economic Policy


I. INTRODUCTION

Biodiversity loss is among the most serious environmental problems facing the world today. Natural habitats in the moist tropical regions, which harbor the majority of the world's flora and fauna, are being lost at an alarming rate. It is estimated that in tropical rain forests alone the rate of loss of entire species (not merely genetic varieties or subspecies) is now a minimum of about 27,000 per year, or 3 per hour, and the rate is increasing. This rate of decline is believed to be at least 1000 times the "ordinary" (i.e., background) rate of extinction (Wilson, 1992). There are many who believe that we are facing a biodiversity crisis, and others have gone as far as to suggest that we are slipping into a rate of extinction that may well rival that which resulted in the demise of the dinosaurs some 65 million years ago.

Within the past decade, there has been a resurgence of the debate about the effects of economic growth on environmental quality. This particular debate has been fueled by studies carried out in the early 1990s that showed that there is an inverted U-shaped relationship between certain indicators of environmental degradation and economic growth (e.g., see Grossman and Krueger, 1991, 1995; Antle and Heidebrink, 1995; Shafik and Bandyopadhyay, 1992; Selden and Song, 1994). This relationship is now widely known as the environmental Kuznets curve (EKC). The EKC hypothesis suggests that environmental effects are initially low at low levels of economic growth. However, as development proceeds, the rate of pollution increases. At higher levels of economic development, countries are able (through structural change) to substitute toward industrial and agricultural technologies that are less harmful to the environment. A typical feature of the EKC is the inverted U shape, which suggests that the level of pollution reach es a maximum level with respect to income, after which it begins to decline.

The EKC debate is of considerable national and international importance. The existence of such a relationship would lend support to the view that as countries develop they will experience a cleaner environment (Beckerman, 1992; Bartlett, 1994). A corollary of this view is that pollution is a necessary evil for countries at an early stage of development and that economic growth is the key to solving environmental problems.

This article considers the issue of biodiversity loss in the context of the current debate on economic growth and environmental quality. The EKC debate has given rise to a rapidly expanding literature, part of which is reviewed in the next section. (1) However, the majority of these studies focus on aspects of environmental degradation such as air and water pollution and deforestation. The basic premise here is that biodiversity belongs to a special class of environmental degradation because it involves complex ecosystems, the loss of which cannot be recovered by technological advances. As such they differ from other types of environmental degradation, such as pollution and deforestation, for which improvements are possible to some extent. Furthermore, biodiversity levels are not related to energy use, unlike pollutants commonly used in EKC studies. Thus at the global level, there cannot be a turning point in the relationship as income increases. Rather than estimating an EKC relationship, here the article en deavors to investigate the determinants of biodiversity loss and offer suggestions for policy. The main finding of the study is that although economic growth has an expected adverse effect on biodiversity, the composition of output can be important, particularly in low-income countries. For some aspects of biodiversity (such as mammal and bird species), the results indicate that there is some scope for using appropriate institutional and macroeconomic policies to reduce the rate of species decline.

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