10 Globalization and ‘localization’ and the environment

1. 875-9.ppt 10 Globalization and ‘localization’ and the environment • Globalization, pollution havens and endogenous environmental regulation • Interactions of trade reforms and domestic policies: decentralization and sub-national governments

2. 875-9.ppt Globalization & growth: three observations • Globalization  removal of impediments to trade & factor flows in presence of other distortions • Other policies and institutions; market failures • Hence ambiguity of welfare effects • Increasing incomes may generate ‘technique effects’ in general • Although no strong evidence for forests, NR • But rising incomes also generate demands for ag. protectionism (Anderson and Hayami 1986) • Which effect will dominate?

3. 875-9.ppt Trade policy reform and the environment • Env’l effects of trade liberalization • Pollution haven hypothesis • Factor endowments hypothesis • (Antweiler et al 2001) • Country-specific reforms and outcomes (e.g. OEE Chapters 6, 7, 8) • Outcomes depend on nature of reforms • And on endowments, institutions, laws & regulations

4. 875-9.ppt International capital flows • K inflows (outflows) affect resource endowments • Rybczinski stories about aggregate endowments and structure of production; • Many FDI flows are sector-specific or have specific-characteristics (embedded knowledge, global market links, etc) • Sector-specific rates of return on capital depend on many factors: • Rel. commodity prices (--> trade & domestic price policies) • Laws, regulations, externalities (e.g.: Indonesian forest fires and oil palm expansion)

5. 875-9.ppt Globalization affects amenity values • Changing structure of trade and production alters opportunity costs • Cp. spatial expansion of the market • Tourism/ecotourism development as an example? • Local expression of a global technique effect? • Related: debt-for-nature swaps, private-public partnerships in resource acquisition and land retirement

6. 875-9.ppt International agreements on trade and envn’t • WTO • Permits LDCs to maintain agricultural & natural resource protectionism (national & sectoral asymmetry) • Tension between WTO trading rules and environmental concerns (dolphin-tuna conflict) • Interactions of WTO rules and domestic policies are potentially important for sectoral and environmental outcomes (e.g. W. Martin 2001; Huang, Rozelle and Zhang 2000) • WTO article XVII limits state trading, reduces ‘airlock’ between domestic and int’l markets • But confers latitude in tariff rate quotas • Cp. state marketing bodies in SS Africa

7. 875-9.ppt ‘Localization’, growth, policy & environment • Setting: powers of subnational governments • Restraints on trade, local taxation and provision of public goods; environmental regulations • Some LDCs have always had meaningful federal systems (China, Brazil, India) • In others, decentralization is accelerating • De jure: Philippines, Indonesia, Bolivia, Mali, … (WDR 2001) • De facto: Indonesia, China … How do center-local tensions affect env. outcomes of growth & trade?

8. 875-9.ppt Standard literature on local governance • Theory: decentralization theorem (Oates 1972) • Gov’t functions should be devolved to the lowest level of administration at which externalities are internalized • Extensions and additions (e.g. Tiebout) • Applications: externalities and interjurisdictional competition for jobs & investment -- a race to the bottom? (Oates and Schwab, J. Pub. Econ 1988; A. Levinson, JEEM 1997)

9. 875-9.ppt LDC cases: tensions between national and local objectives • E.g. China • Ownership: common assets, no conservation incentives • Price ‘scissors’: undervaluation & inefficient use of natural resource assets e.g. land • Initially, national self-sufficiency in grains; ‘degenerated’ into regional self-sufficiency (Lin 1998) • Overproduction in deficit areas unsuitable for grain prod’n • H’hold responsibility system & subsequent reforms address some issues • E.g. incentives to maintain & improve irrigation systems • But provincial self-suff. remains, is sanctioned (Young 2000)

10. 875-9.ppt Practical challenges of decentralization • Asymmetric distribution of information and enforcement costs • OSFA versus local environmental policies (e.g. watershed management)

11. 875-9.ppt •x(c1, d1) •z(c2, d1) •y(c1, d2) ci = unit abatement cost of sector i. dj = transmission parameter at distance j from receptor site

12. 875-9.ppt Spatial & sectoral costs • Framing least-cost policies requires both sectoral and spatial knowledge and policy tools • If a single agency’s control area doesn’t extend to both, it cannot implement a least-cost policy • Environmental and resources policies are among most obvious sources of policy failure • When growth or trade --> changes in economic conditions, optimal control areas may also change, requiring institutional innovations or legal reforms • E.g. design of land use regulations in livestock/pastoral systems (Perrings 1987)

13. 875-9.ppt References (not in OEE) K. Anderson and Y.Hayami (1986): The Political Economy of Agricultural Protectionism: East Asia in International Perspective (Sydney: Allen & Unwin) W. Martin (2001): State trading and China’s agricultural import policies. Can. J. Agr. Econ 49 Huang, J.; S. Rozelle, L. Zhang (2000): WTO and agriculture: radical reforms or continuation of gradual transition? China Econ. Rev. 11. World Bank (2001): World Development Report (Washington DC: OUP) (re: decentralization)