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Globalization, Local Ecosystems, and the Rural Poor

RIMJHIM M. AGGARWAL *

Southern Methodist University, Dallas, TX, USA

Summary. In this paper, we draw upon models from ecology and New Institutional Economicsto examine the various mechanisms through which globalization can lead to loss in resilience ofecosystems and thus increase the vulnerability of poor people who depend on it. To illustrate eco-logical dynamics, we examine a semi-arid savanna ecosystem that is characterized by nonlinearitiesand multiple steady states. We discuss how traditional knowledge and institutions affect resourceuse patterns and resilience of such an ecosystem in the absence of trade. Then we examine the effectsof trade liberalization and international technology transfers on institutional and ecologicaldynamics, and consequently, on poverty. 2006 Elsevier Ltd. All rights reserved.

Key words poverty, globalization, environment, ecosystem, resilience, institutions, semi-aridsavanna

1. INTRODUCTION

As the world economy becomes increasinglyintegrated through trade liberalization, interna-

tional technology transfers, and greater mobil-ity of capital and information, there is agrowing interest in examining how thesechanges (referred to as globalization) will im-pact the wellbeing of the poor in developingcountries. Globalization is a multidimensionalprocess, and it may affect poverty though sev-eral complex pathways. Among these alterna-tive pathways, an important but relatively lessstudied pathway works through the effects ofglobalization on local ecosystems. 1 Local eco-systems constitute a critical link because rural

poor in developing countries derive a large partof their incomes from local natural resourcebased activities such as crop and livestock pro-duction, fishing, hunting, fuel wood, and minorforest product collection (Dasgupta, 1993).Thus, it becomes natural to ask how globaliza-tion, in its various dimensions, affects local eco-systems, and thus the wellbeing of the ruralpoor who depend on it.

A somewhat different, but related question,of how trade liberalization affects the environ-ment has been extensively examined in the

economics literature. In particular, severaltheoretical and empirical studies have examinedthe validity of the Environmental Kuznets

Curve (EKC), which hypothesizes that with risein per capita incomes, environmental degrada-tion first increases and then falls. Therefore,in so far as globalization leads to rise in per

capita incomes, environmental degradation islikely to increase with increased incomes forpoor countries while it falls for the richer coun-tries. In a recent survey of empirical studies onEKC, Copeland and Taylor (2004) found noconclusive evidence to support the existence ofa simple and predictable relationship betweenenvironmental degradation and per capita in-comes. They find the estimated relationship be-tween per capita incomes and environmentalquality to be highly sensitive to the type of pol-lutant, the time period, and the sample of

countries/cities used in the study. Anotherwell-known mechanism relating globalizationto environmental degradation works throughthe export of dirty industries and the crea-tion of pollution havens in developing

* An earlier version of this paper was presented at the

UNU-WIDER Conference The Impact of Globaliza-

tion on the Worlds Poor: First Project Meeting on

Conceptual Issues, Helsinki, October 2930, 2004. I

would like to thank K.L. Mehra, Machiko Nissanke,

Alice Sindzingre, Erik Thorbecke, and an anonymousreferee for extensive comments on an earlier version of

this paper. Final revision accepted: October 20, 2005.

World Development Vol. 34, No. 8, pp. 14051418, 2006 2006 Elsevier Ltd. All rights reserved

0305-750X/$ - see front matter

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countries due to their weak environmental stan-dards. Empirical evidence suggests that this hasnot happened on any significant scale, possiblybecause the costs imposed by environmentalregulations are small relative to the other costs

that affect location decisions of MultinationalCorporations (MNCs) (Eskeland & Harrison,2003; World Bank, 2002).

An important contribution of this extensiveresearch relating to EKC and pollution havenhypothesis has been that it has led to demolish-ing the widely held common belief that tradeand growth inevitably lead to environmentaldegradation. This literature has also high-lighted the role of institutions and endogenouspolicymaking, together with conventional fac-tors such as factor endowments, capital accu-

mulation, and technology, in mediating theeffects that trade has on the environment. How-ever, an important limitation of this literature isthat it has almost exclusively focused on indus-trial pollutants. As Copeland and Taylor (2004)observe in their survey of this literature, thereis very limited empirical work examining theeffects of trade on renewable resources such ascropland, pastures, forests, fisheries, andwater. 2 This is an important shortcoming, par-ticularly if one is interested in examining theeffects of trade liberalization on rural poverty,

since rural livelihoods are inextricably linkedto extraction of these resources.

In the limited empirical work that exists onthe effects of trade on renewable resources,there is a tendency to focus on a single resourcein isolation from the rest of the ecosystem inwhich it is embedded. In contrast to this, mod-els from ecology often emphasize the need for asystem wide approach that pays explicit atten-tion to the feedback and linkages that existamong the key variables that constitute the eco-system. Until quite recently, ecologists did not

pay adequate attention to the working ofhuman systems (in terms of the social, eco-nomic, and political dimensions) and its inter-action with the ecological system. In recentyears, there have been some attempts at analyz-ing the dynamic interactions of human systemsand ecosystems. 3 In this paper, we draw uponsome of the ideas put forth in this literature toexamine the various mechanisms throughwhich globalization, in its various dimensions,can lead to ecosystem degradation and poverty.As discussed above, an important lesson to

emerge from previous research is that there isno simple predictable relation between tradeand environment, and that institutionsto-

gether with other national characteristicsplayan important mediating role. Thus, the ap-proach we follow in this paper is to draw uponmodels on ecosystem dynamics from ecologyand link them to models in New Institutional

Economics that examine how institutions andtechnologies evolve. The underlying idea is tofirst understand how human and natural sys-tems dynamically interact within a closed com-munity and then to examine the conditionsunder which integration into the global econ-omy degrades the local ecosystem and its conse-quences on poverty.

The central ideas within the paper are devel-oped as follows. First, we discuss some key con-ceptual issues related to the dynamics ofecosystems. An ecosystem can be viewed as a

system of biotic and abiotic variables that areassociated with different temporal scales (somechange fast while others are slow) and differentspatial scales (some stretch across several re-gions while others are relatively localized).Ecologists believe that these cross-scale interac-tions between constituent variables lie at theheart of some of the most interesting character-istics of ecosystem dynamics (Holling, 1986). Ineconomic models, it is generally assumed thateither economic activities do not impact theunderlying biophysical environment or that

the impact varies smoothly (often linearly) withthe amount of stress. Ecologists, on the otherhand, have found these dynamics to be largelynonlinear, and often associated with sharp dis-continuities, high uncertainties, and alternativestable states. To illustrate these dynamics, weexamine a prototypical model of a semi-aridsavanna ecosystem that is characterized bymultiple steady states and threshold effects.An important ecological concept in this contextis that of resilience, which refers to the ability ofecosystems to absorb shocks without changing

their essential structure. In economic models,only the productivity of a resource is consid-ered. We discuss why resilience is also animportant characteristic and why managementinstitutions that focus only on short-term pro-ductivity may lower resilience and contributeto the emergence of crisis. Lower resilience ofthe ecosystem, in turn, implies greater vulnera-bility of the poor people who depend on thatecosystem for their livelihood. Thus, studyingresilience of ecosystems is critical for povertyanalysis.

Next, we examine how these ecosystemdynamics interact with the dynamics of humansystems. Here we first consider the case of a tra-

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ditional closed economy and use this discussionas a benchmark to later examine the impact ofglobalization. Within the context of a tradi-tional closed economy, we discuss how theshared memory of long-term experiences shapes

resource-use practices and how these practicesfare in terms of productivity and resiliencevis-a-vis the modern resource managementregimes. From an ecological perspective, glob-alization refers to a process of integrationacross space of some (not all) constituent vari-ables of the humanecological system. Thisintegration happens at a different pace for dif-ferent variables, and this process transformsthe earlier structure of relations across spaceand time. Some variables, such as institutions,change much slower than other economic vari-

ables and we discuss how these become impor-tant determinants of the outcomes that emerge.Integration into the world economy may hap-pen through several pathways. We examine,in particular, the effects of trade liberalizationand technology transfer on institutional andecological dynamics, and consequently, on pov-erty.

2. ECOLOGICAL DYNAMICS

Ecosystems have been changing constantlyeven before humans first appeared on the pla-net. Our interest here is to present some stylizedversions of how human intervention may im-pact the ecosystems and how ecosystems re-spond back to such interventions. FollowingScheffer, Westley, Brock, and Holmgren(2001), we will use stress as a general term forthe effect of human use through harvesting,destroying biomass or affecting abiotic condi-tions (e.g., groundwater reduction or climatechange).

(a) Stylized versions of ecosystem response tostress

In Figure 1a and b, we present two differentstylized versions of the relation between stressand state of the ecosystem. 4 In economic the-ory, it is generally assumed that either humanactivities do not have any significant effect onthe biophysical environment or that the effect,if significant, varies smoothly with the extentof stress, as shown in Figure 1a. It is increas-

ingly being recognized by ecologists that thisrepresentation is highly simplistic and doesnot fully capture the complexity of ecosystem

dynamics that are often marked with sharp dis-continuities and multiple stable states. Very of-ten an ecosystem may not show any significantvisible signs of stress until it flips over to an-other state when certain thresholds are crossed,

as shown in Figure 1b.Scheffer et al. (2001, p. 197) describe the case

in Figure 1b as one where the ecosystemresponse line is folded backwards. This isknown as a catastrophe fold and implies thatthe system has two alternative stable states overa range of environmental conditions. Whenthe state of the ecosystem lies in the upperbranch of the folded curve, it cannot pass tothe lower branch smoothly. Instead, when con-ditions change sufficiently to pass the thresholda catastrophic transition to the lower branchoccurs. The movement from one stable stateto another (also sometimes referred to as aphase transition) may not be reversible, or the

Ecosystemst

ate

Stress

Ecosystems

tate

F2

F1

Stress(b)

(a)

Figure 1. Schematic representation of two possibleresponses of ecosystems to stress imposed by human use

(adapted from Scheffer et al., 2001).

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reversal may take a very long time or beachieved at a very high cost. An important fea-ture of these systems is that to induce a switchback to the upper branch (in Figure 1), it is notsufficient to restore the environmental condi-

tions of before the collapse. Instead, very often,one needs to go back further, beyond the otherswitch point, where the system recovers byshifting back to the upper branch. This pattern,in which the forward and backward switchesoccur at different critical conditions, is knownas hysteresis.

A number of ecosystems have been found toexhibit such dynamics. Some widely studiedexamples include semi-arid savanna grasslands,pest infestations in forest and agricultural eco-systems, and the eutrophication of shallow

lakes. In order to further clarify these ecologi-cal dynamics and their implications, we de-scribe the case of semi-arid savannas in detail.The semi-arid savannas are home to a largeconcentration of poor people around the worldand the transformations in this ecosystem serveas a useful illustration of the central argumentswe propose in this paper.

(b) Ecological dynamics in semiarid savannaecosystems 5

We use the term semi-arid savannas to referto those regions of the world, which in theirnatural state have a predominant continuousgrass cover with scattered to numerous treesand shrubs (Walker et al., 1981, p. 173). Semi-arid savanna grassland systems that were con-sidered to be productive pasturelands havebeen transformed in to arid shrub lands (oftenalso referred to as wastelands) in several re-gions such as the Sahel zone of Africa, southernand eastern Africa, and northern India.

Semi-arid savanna is a water-limited system.

Rainfall is scanty and interrupted by periodicdroughts. Thus, a critical ecological variable isthe water infiltration rate. Biomass of grass isa critical factor in determining the rate andamount of infiltration. As grass cover declines(say due to intense grazing), surface pores be-come sealed and soil erodes, and both of theseprocesses lead to decrease in water infiltrationrate. The typical vegetation in a semi-aridsavanna consists of a mix of grasses (G) andwoody vegetation (W). Grasses and woody veg-etation both compete for available water on the

upper layers of the soil. Grasses are moreefficient than woody vegetation in extractingwater from upper layers of soil. Thus, in a year

with average rainfall in savanna region, grassgrows much more rapidly than woody vegeta-tion. But below the grass root zone (subsoil),woody vegetation has nearly exclusive use ofwhatever water gets through. Thus, under

drought condition, woody vegetation performsbetter than grass.

Cattle and sheep, which are the major herbi-vores in the region, selectively eat grass andonly negligible amounts of woody vegetation.Thus, under high stocking levels, commonpattern of range deterioration is as follows.Grasses are affected more adversely than woodyvegetation. Short periods of high grazing mayreduce grass cover to some very low level. Butthis may not cause an immediate change inequilibrium conditions, because of slower re-

sponse of water infiltration rate and evenslower response of woody vegetation. However,if the grass biomass is kept at a very low ratefor a prolonged period then slowly the soil sur-face, and consequently the water infiltrationrate, declines. The result is that less water entersthe soil, and proportionally more of what doesenter penetrates to the subsoil level. So thewoody vegetation has relatively more wateravailable, and it begins to dominate. Thereduced infiltration and greater biomass ofwoody vegetation combine to prevent the rees-

tablishment of grasses, even if grazing pressureis reduced. It is only if one or both of these fac-tors are changed to allow the grass to developabove the critical unstable equilibrium in Fig-ure 1 will the system revert back to its originalstate of predominance of grass biomass. As thewoody vegetation expands over time, the rootsystem becomes relatively extensive and persis-tent. Thus, the competitive effect of the rootsystem of the woody vegetation must be re-moved for long enough to allow for grass rootsystems to develop to the point where it can

take up more water than the tree roots. It isimportant to note that the initial state withlow stocking rates and dominance of grassesand the new state with dominance of woodyvegetation are both stable as in Figure 1b.

The case of semi-arid savanna ecosystemillustrates several salient features of ecosystemdynamics that we use as a background fordiscussion in the rest of the paper. Thus, forinstance, many ecologists believe that under-standing cross-scale interactionsthat is, inter-actions between fast and slow moving

variables, as well as the interaction betweenvariables that have a limited local impact as op-posed to those that have a wider impact

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spatiallyis very important in understandingecological dynamics. This phenomenon is wellillustrated in the above discussed case of semi-arid savanna ecosystem through the interactionof grass coverage (a fast changing variable)

with woody vegetation (a relatively slow chang-ing variable), and water infiltration rate andsoil characteristics (the slowest changing vari-ables). Variables that change very slowly are of-ten assumed to be constant and we will discusshow this is an important source of differencein perceptions of human societies at differenthistorical periods. The above discussion alsopoints to the presence of multiple equilibria,threshold effects, and hyteresis in ecologicaldynamics, which as we explain later becomeimportant in understanding the emergence of

poverty traps.

(c) Resilience of ecosystems and its implications

In the presence of multiple equilibria andthreshold effects, an important concept that isuseful in understanding the impact of stresson ecological dynamics is that of resilience.Resilience is defined as the ability of a systemto maintain its structure and pattern of behav-ior in the face of disturbance (Holling, 1986,p. 297). Ecosystems are constantly changing

and adapting to different kinds of stresses.Thus, from a policy perspective the relevantquestion isto what extent can the ecosystemabsorb change without changing its basic struc-ture, that is, without flipping from one state toanother functionally undesirable state, as in thecase of semi-arid savannas described earlier.

The concept of resilience is very useful be-cause it emphasizes the qualitative propertiesof an ecosystem in terms of its structure of rela-tionships between different kinds of variablesand processes that control system behavior.

This also underlies the difference between theconcept of resilience and stability of an equilib-rium point. Stability refers to the propensityof populations in an ecosystem to return toan equilibrium point following a disturbance.The difference between the two concepts liesin the focus of analysis within an ecosystemstability is defined in the context of amicro-focus on a specific population within anecosystem while resilience refers to a macrofocus on the structure of relations between thedifferent populations (Common & Perrings,

1992).Different structure of relations can produce

multiple stable states, each characterized by

its own domain of stability. Sometimes, thechanges within an ecosystem are continuousas when the system moves within the samestability domain. At other times, an exogenousevent and/or changes induced by internal

dynamics can trigger a discontinuous move-ment across different stability states. An impor-tant determinant of resilience of ecosystems isbiological diversity (Holling, 1986). This is be-cause resilience of an ecosystem depends onthe existence of a diverse set of species thatare capable of serving key ecological functionsunder different environmental conditions (Per-rings, 1995). Thus, loss of diversity implies thatthe alternate pathways through which stresscould earlier be transmitted are no longer avail-able. This in turn implies greater vulnerability.

As key variables (e.g., species composition, agestructure, spatial distribution) become morehomogenousstability domains shrink andperturbations that could earlier be absorbednow cascade upwards to produce more drasticeffects. In the next section, we use the above dis-cussion of ecosystem dynamics and the conceptof resilience to examine how human systemsinteract with their local environment.

3. SOCIOECONOMIC AND ECOLOGICAL

DYNAMICS IN A CLOSEDTRADITIONAL ECONOMY

Humans have been active agents in the evolu-tion of ecosystems. However, until quite re-cently, the study of ecosystems and humansystems developed in relative isolation. Thedifferent elements of social and economic orga-nizationsuch as technology, institutions,values, and culturesco-evolve with ecologicalvariables. Thus, for instance, a change in localenvironmental conditions (say in the form of

decline of certain resources or fall in catch perunit effort) may trigger a response in rulesgoverning resource management. The latter,in turn, may affect resource dynamics in thefuture. The analysis of these feedbacks fromnatural to human systems within a dynamicframework is crucial. Unlike other species,which are largely genetically programmed toperform in certain defined ways, humans havethe capability of conscious actions. This opensup a myriad of possibilities in their interactionwith other humans and with their ecosystems.

In this section, we outline some interactions be-tween the ecological system and the socio-eco-nomic system in a traditional closed economy.



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Although trade and markets have been in exis-tence even in pre-modern societies, in this sec-tion we discuss a stylized version of a tightlyknit closed economy to provide as a benchmarkfor our discussion on the impact of globaliza-

tion in the next section.

(a) Role of traditional institutions

An important channel through which therelation between ecosystems and human sys-tems is mediated is through institutions. Fol-lowing North (1989), we define institutions asthe constraints that structure repeated humaninteraction. Customs, conventions, norms, andvalues that influence and guide individualbehavior are examples of informal institutions.

More formal institutions include markets, laborunions, stock markets, and property rights. Ourfocus here is on institutions that govern the useand management of natural resources.

Natural resources in many rural settings canbe characterized as common pool resources(CPRs) where costs of exclusion are high and

joint use involves subtractability (Ostrom,Gardner, & Walker, 1997). Given these charac-teristics of CPRs, institutions serve two criticalmanagement roles. First is regarding how togovern access to the resource (exclusion prob-

lem) and the second relates to instituting rulesamong users to solve the potential divergencebetween individual and group rationality (sub-tractability problem) (Berkes & Folke, 1998).It was believed earlier that users of a CPRwould end up in an inescapable tragedy of thecommons. However, several studies over thepast two decades have drawn attention tothe complex set of rules and regulations that ex-ist in many rural communities to deal with theexclusion and subtractability problem discussedabove (Berkes, 1989; Ostrom, 1990). Thus, the

tragedy of the commons is not inevitable. Adiversity of outcomes is possible ranging froma situation where there are no regulations gov-erning access (open access) and the tragedy ofthe commons does occur to a situation whererights of access and joint use are clearly defined(common property) and the tragedy is averted.

Property rights arrangements are often verycomplex in traditional societies because theseinvolve a bundle of rights including userights, rights to exclude others, rights to man-age, and rights to sell. For instance, among

the Barabaigwho are semi-nomadic pastoral-ists in the semi-arid Hanang district of Tanza-niaa bundle of rights exist for pastures,

trees and water resources (Lane, 1992). Openrangeland is regarded as property of the com-munity and its use is regulated by a set of cus-tomary rules. The Barabaig, however, alsorecognize private property in the form of a

homestead and its surrounding areas. Perma-nent settlements along lake marginswherethe wells provide permanent sources ofwaterare restricted as this would result indepletion of the pastures near the water source,which is critical for the community in the dryseason. Water routes are also closely protectedand homesteads are not allowed to be builtthere. This structure of rights has evolved inclose accordance with the underlying ecologicalconditions and the rotational grazing patternspracticed by this community of pastoralists.

Another important point that comes out inLanes (1992) description of this community isregarding how such traditional rights struc-tures, although more complex than their mod-ern counterparts, are also more adaptive tochanging ecological conditions. Particularly inecosystems characterized by high uncertaintiesand multiple steady states (as in Figure 1b),adaptability of resource management institu-tions to changing ecological conditions is verycritical. As we discuss later in this paper, manyresource crises have been found to occur in

cases where these institutions have become ri-gid and unresponsive to environmental feed-backs. 6

(b) Role of traditional knowledge systemsand practices

As discussed above, the close dependence oftraditional societies on the natural environmentled them to be highly responsive to environ-mental feedbacks. Through a process of trialand error, they learnt how to look for signals

of environmental distress and how to respondto it through development of flexible institu-tions. This knowledge was then transmittedthrough rituals, religious practices, and oralhistory across generations. The embeddedlong-term institutional memory of shared expe-rience in these societies forms the basis of cus-tomary practices and institutions for use andmanagement of natural resources (Berkes &Folke, 2001).

In their extensive research on traditionalecological knowledge systems and practices,

Berkes and Folke (2001) found that unlikemodern management regimes, which are sci-ence-based and draw on a short span of recent

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experience, the institutional memory embeddedin traditional systems leads resource users to behighly aware of long-term trends in resourcepopulations. In particular, they found that tra-ditional knowledge systems have certain simi-

larities and parallels to the theory of complexsystems, with emphasis on nonlinear relation-ships, threshold effects, multiple equilibria, theexistence of several stability domains, cross-scale linkages in time and space, disturbance,and surprise (2001, p. 124). To support theirargument, they give examples of several tradi-tional resource use practices that mimic thebehavior of such systems. An important exam-ple is that of pulse grazing practiced in severaltraditional pastoral communities throughoutthe world. Under this practice, a piece of pas-

ture is grazed intensively for some time andthen allowed to rest. Recent ecological studieshave found that these pulses of grazing contrib-ute to the capacity of semi-arid grasslands tofunction under a wider range of climatic condi-tions and thus contribute to greater resilience(Holling, 1986).

The awareness of uncertainties and multiplestable states also led traditional societies to de-vise various practices that could serve as buffersand provide informal insurance. Thus, for in-stance, under rotational grazing patterns, cer-

tain pastures were left to be used only in dryseasons and times of crises (Lane, 1992). Mod-els of resource use based on linear relationshipsmay find these resource practices to be unpro-ductive over the time horizon generally consid-ered in these models, neglecting their role inenhancing long-term resilience. Global integra-tion has led to a breakdown of many of thesetraditional knowledge systems, as we discussin detail in the next section.

4. IMPACT OF GLOBALIZATION

We will define globalization as a process ofintegration of flows (such as trade, capital,labor, and information) and the policies thatfacilitate such flows (in the form of reductionof barriers on trade, financial flows and migra-tion). Individuals have been exposed to globalflows ever since the advent of trade in humanhistory. However, as argued in World Bank(2002, p. 23), historically before about 1870none of these flows was sufficiently large en-

ough to warrant the term globalization. Sincethe 1870s, there have been periods of more orless globalization but in this paper, we will ab-

stract away from these details and focus on thelong-term impact of globalization on a tradi-tional agrarian economy.

In Section 2, we discussed how an ecosystemcan be viewed as a system of interrelated vari-

ables that operate at different scales spatiallyand temporally. Extending this insight fromthe ecological literature to economics, the pro-cess of globalization can be conceptualized tohave the following effect. It leads to an integra-tion of some (not all) of the constituent vari-ables across space. The different rhythms ofintegration and transformation of constituentvariable leads to different outcomes dependingon how the resultant opportunities/tensionsare utilized/resolved. Thus, for instance, pestsor disease pathogens (as in case of HIV) that

earlier had a local effect spread out more acrossspace. However, it is not generally true thattheir natural predators/host in the original eco-system would also spread out similarly acrossspace. Similarly, goods and services may betraded globally but institutions, culture, andvalues remain more strongly embedded locally.As described earlier in Section 2, it is theseslowly changing/integrating variables that be-come an important determinate of the natureof outcomes that emerge. New configurationsof variables with different spatial and temporal

scales emerge and it is difficult to say a priorihow the outcomes would affect ecosystem resil-ience and the welfare of the poor. We outlinebelow some pathways through which the effectscould be transmitted.

(a) Trade liberalization, specialization, pricevolatility, and loss of resilience

A useful way of studying the impact of tradeliberalization on the environment is to decom-pose the total effects in terms of scale, composi-

tion, and technique effects. 7 In terms of themodel presented in Section 2, the scale effectmeasures the change in the state of the ecosys-tem if the economy were simply scaled up,holding constant the mix of resources extractedand the production techniques. The composi-tion effect measures the effect of change in amix of different resources extracted, keepingconstant the scale and production techniques.Finally, the technique effect measures the effectof changes in techniques of resource extraction,keeping the scale and composition constant. In

this subsection, we will discuss the scale andcomposition effect. The technique effect is dis-cussed in the next subsection.

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In so far as trade and growth bring aboutgreater opportunities and an increase in in-comes, there is an upward scale effect, which in-creases stress on the ecosystem in Figure 1b.This scale effect is further compounded by the

composition effect when there is specializationin natural resource extraction activities follow-ing trade liberalization. In a widely cited paperon NorthSouth trade, Chichilnisky (1994) be-gins by observing that developing countriestend to specialize in export of goods, which de-plete environmental resources. She argues thatthis is not necessarily because they are betterendowed with such resources. In fact, sheshows that even if the two countries are identi-cal in all respects except that one of them(North) has well-defined property rights on nat-

ural resources while the other (South) does not,trade will occur between them with the Southspecializing in production of natural resourcebased activities. In her model, trade betweenthese two countries increases the overuse of re-sources and makes the misallocation of re-sources worse. 8 In cases where the underlyingecosystem exhibits the dynamics representedin Figure 1b, there is a high risk that the sharphike in resource extraction activities in the post-liberalization period may push the ecosystemover the threshold into another less productive

state. As opposed to the pre-liberalization per-iod when the scale of production is limited bythe size of the domestic market, the need forwell-functioning regulatory institutions is verycritical in the post-liberalization period as wediscuss in Section 4(c).

Another important pathway through whichspecialization in a narrow range of natural re-source based activities affects the ecosystem isthrough the loss in bio-diversity (Brock, Maler,& Perrings, 2001). As discussed before, loss inbiodiversity makes the ecosystem less resilient

because of a reduced number of pathwaysthrough which stress in the environment canbe absorbed. This happens, for instance, whenforest ecosystems rich in biodiversity are trans-formed for the purposes of growing a narrowrange of crops for exports. This also happenedin the earlier discussed case of semi-arid savan-na ecosystems in the Sahel region upon openingof external markets. Here the wide diversity ofperennial and annual varieties of grasses thatoccur naturally (with different degrees of palat-ability to herbivores and drought resistance)

were replaced by a couple of annual varietiesthat grow faster but have much lower droughtresistance property (Holling, 1986). These

changes, carried out over vast tracts of land, re-duced functional diversity and increased spatialuniformity in grassland ecosystems. The overalllong-term effect has been an increased vulnera-bility to external shocks such as droughts. Mar-

ket integration has also led to higher spatialconnectedness and thus the possibility thatshocks that earlier had only local impacts arenow transmitted more widely (Holling, 1986).Thus, on the one hand, the economy has be-come exposed to higher risks due to price vola-tility in international markets. On the otherhand, the ecosystem has become more vulnera-ble and thus less capable of handling any exter-nal shocks.

(b) International technology transfers and

myopia

In an interesting historical analysis of the im-pact of technological development on ecosys-tems, Westley, Carpenter, Brock, Holling, andGunderson (2001, p. 117) observe that duringmost of the twentieth century the goal of tech-nologically based resource management hasbeen to control the external sources of variabil-ity in order to seek a singular goal such as max-imization of yield (tress, fish). Thus, the focusis on a small set of target variables and there is

a tendency to pay insufficient attention to theeffects of the intervention on other parts ofthe system. Thus, although the interventionmight be successful at first in its stated objec-tives, but then slowly as other parts of the sys-tem change, new problems often emerge. Tosupport their argument, Westley et al. give theexample of industrial nitrogen fixation to makefertilizers. This innovation made an importantcontribution to increasing agricultural produc-tion but created unexpected long-term sideeffects, including toxic levels of nitrate in

groundwater and widespread acidification ofecosystems.

Another important example comes frommodern forest management regimes where fre-quency of forest fires was successfully reducedin order to promote recreational demand. Withreduction in frequency of fires, more fuel accu-mulated over time and forests crowns closed.All these changes created a forest system inwhich whenever a stochastic ignition event suchas lightening causes fire, the intensity is muchhigher and the consequences are much more

catastrophic than before. Thus, although alonger period elapses before a fire occurs, theimpact is more drastic because of changes in

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the structural characteristics of the forest sys-tem. 9 Similarly, in many developing countries,transient success in spraying DDT and control-ling mosquito populations led over time tohuman populations with little immunity and

mosquito vectors resistant to DDT. As a conse-quence of these changes, some countries re-ported a 3040 fold increase in malaria casesin the 1980s compared with 196970 (Holling,1986).

In recent years, there has been a growing rec-ognition of these long-term system wide effectsand new technologies have been developed asa consequence. However, there are a numberof reasons why resource management tech-niques in developing countries continue to beplagued by myopia and tend to pay insufficient

attention to system wide effects. First, withglobalization, resource management techniquesdeveloped in Western countries in the context oftemperate ecosystems are often transferredwithout much modification to other types ofecosystems worldwide. Thus, although the ori-ginal technological innovation might have beenmade with sufficient attention to its long-termeffects on the local ecosystem, the same levelof caution may not carry over as the techniqueis transferred to other contexts. 10 Second, it isimportant to keep in mind that MNCs have

been responsible for a large part of internationaltechnology transfers in recent years. 11 Thesecorporations that are motivated by global out-put or profit maximization have little interestin long-term domestic impacts of their opera-tions. Finally, there is some limited evidenceto show that the burden of large internationaldebts leads governments in developing countriesto adopt resource management practices thatcan quickly earn foreign exchange without ade-quate attention to their long-term impacts. 12

(c) Institutional dynamics, rent seeking, andpoverty

In the previous two sections, we have eluci-dated the effects of trade liberalization andinternational technology transfer on local eco-systems. However, this story is incompletewithout discussing the role of institutions inmediating these effects of global integrationon ecosystems and on poverty. In Section 2,we discussed the functioning of institutions ina traditional closed economy. We now examine

how globalization affects the evolution of re-source management institutions and the conse-quences of this evolution on poverty.

Recent developments in New InstitutionalEconomics have made a significant contributiontowards our understanding of existing institu-tions. However, these theories here are stillsomewhat vague about the mechanisms through

which new institutions emerge and why dysfunc-tional institutions continue to persist over longperiods (Akerlof, 1984). As Bardhan (1989) ob-serves, the biological analogy of natural selec-tion in the survival of the fittest institutioncannot be applied to understand the evolutionof institutions. Based on his long-term study ofseveral ecosystems around the world, Holling(1986) makes an interesting observation. Heargues that modern resource management insti-tutions and technologies that became moreefficient over time in meeting short-term prod-

uction goals and controlling variability alsobecame more rigid and less responsive to envi-ronmental feedbacks. He believes this rigidityto be an important reason for a fall in long-termresource productivity and eventual crises in anumber of ecosystems around the world.

This phenomenon is very well illustrated bythe long-term impact of the spread of green rev-olution in the form of monocultures of high-yielding varieties of rice and wheat in manydeveloping countries. The initial spread of greenrevolution technology in areas most favorable to

its growth met with phenomenal success over theshort term. However, soon with the help of inter-national aid agencies and massive state support,the technology spread to areas that were notvery suitable for its adoption. Thus, for instance,the technology was widely adopted even in aridand semi-arid areas as well as regions with mar-ginal soils that were not particularly welladapted for this form of intensive cultivationof a single crop. Several recent ecological studieshave compared this technology with more tradi-tional technologies and shown how monocul-

tures have made the local ecosystem morevulnerable to external shocks, such as that in-duced by weather changes or pest attacks. 13 Re-cent evidence points to significant yield increasesin diverse cropping systems compared to mono-cultures. 14 In spite of the growing evidence onthe unsustainability of monocultures, this tech-nology continues to spread. Its initial successin some areas has locked it into a groove wherefurther innovation is restricted and moreappropriate technologies never get a footing.As Bardhan (1989, p. 1392) argues, this lock-

in happens dynamically as sequential decisionsgroove out an advantage from which the sys-tem finds it hard to escape.

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North (1989) points to an interesting reasonwhy new institutions do not automatically de-velop in order to handle more complex inter-dependence such as that brought about byglobalization. He argues that the breakdown

of personal exchange is not just the breakdownof a dense communication network but also thebreakdown of communities of common ideolo-gies and of a common set of rules in which weall believe (1989, p. 1321). Institutional changeinvolves an enormous collective action prob-lem, which may be difficult to come about whenpeople have different beliefs and aspirations.For instance, consider a closed primitive com-munity of people who are highly dependenton their local natural resource base. Over time,they evolve a set of rules governing the use and

management of these resources. These rulesmay not be equitable but are likely to be consis-tent with their shared experience and collectivelearning about resource dynamics. Now as thecommunity opens up and there is greater move-ment of people and new ideas, this shared beliefsystem may begin to dissolve. The opening upof the community may also provide some peo-ple with exit options and thus the old enforce-ment mechanisms working through threat ofpunishment or community sanctions may beginto break. Divergence of interests within the

community may also imply that the criticalmass required for initiating the institutionalchange might not be present.

It is possible that over time, as more andmore people adopt the new belief system, therequisite critical mass will be attained andnew institutions more suited to the changed cir-cumstances will eventually emerge. 15 However,a distinguishing feature of developing countriestoday in contrast to the historical experience ofdeveloped countries is that the opening of tradi-tional communities is happening at a much

greater pace and intensity. Institutions are therelatively slow changing variables in the humansystem, at least as compared to some of theother changes brought about by trade liberal-ization (Sindzingre, 2004). Thus, as in the caseof ecological dynamics model discussed in Sec-tion 2, these slow changing variables lead tothreshold effects and multiple stable states.

In most cases, the opening up of traditionalcommunities in developing countries has beenaccompanied with rise in power of the centralgovernment and a gradual disempowering of

the local communities. North (1989) arguesthat the rise of the state with unequal coercivepower provides the opportunity for individuals

with superior coercive power to enforce rules totheir advantage. This happened, for instance, inThailand during the period when, with tradeliberalization, timber became very valuable.State officials then undermined the local institu-

tions that had been regulating the use and man-agement of this resource. Ross (2001) arguesthat by undermining the local institutions, theywere able to create opportunities for corruptionand what he calls rent seizing. 16 This, inturn, led to greater inequality and poverty.

It is also generally observed that when largebureaucracies replace local institutions for re-source management, there is less sensitivity toenvironmental feedbacks at the local level. AsPritchard and Sanderson (2001) observe, localcommunities are connected to their resources

in ways that bureaucracies are not. Researcherswho have studied resource management insti-tutions in ecosystems characterized by highuncertainties and multiple steady states (as inFigure 1b) have found that adaptability to envi-ronmental feedbacks is a critical requirementfor sustainability of such systems. 17 As arguedin the previous section, this is one respect inwhich traditional knowledge systems andinstitutions generally fare better than modernbureaucracies do. However, community man-agement has its own limitations. For instance,

as Pritchard and Sanderson (2001) argue,face-to-face communication leads to greaterpossibility for preference falsificationthrough intimidation or manipulation or thetendency to follow a leader when informationis limiting. They also show how communitymembers often loose attention and become dis-engaged when issues become too complex orthe problem at hand poses only a slight threatto the community.

Another important problem associated withresource management institutions is that very

often their governance structures do not matchwith the scale of ecosystems. Thus, for instance,watershed management practices may requirecooperation among different villages or some-times even different countries. In this case, evenif management institutions exist at the micro-level (i.e., village or the country level), thesealone are not sufficient. A reverse problem withscale arises when institutions at the macro level(say at national or international levels) governdiverse local ecosystems. As Costanza, Low,Ostrom, and Wilson (2001) point out, large-

scale ecosystems are not simply small scalesystems grown large, nor are micro-scale eco-systems mere microcosms of large-scale sys-

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tems. The driving forces and feedback mecha-nisms in large and small-scale systems operateat different levels and exhibit distinct pat-terns. . . The solution, then, is to match ecosys-tems and governance systems in order to

maximize the compatibility between these twotypes of systems (2001, p. 7). This matchingof ecosystems and governance systems contin-ues to be an important challenge for policymakers in the process of globalization.

As discussed earlier, poor people dependheavily on their local natural resource basefor their basic needs. The transformation of sa-vanna grasslands to arid shrubland in the Sahelregion, as well as parts of eastern Africa andnorthern India, has led to loss of livelihood op-tions for the poor people who live in these

regions. As discussed above, in order for thesystem to revert back to its original staterequires a significant effort in order to pushthe system back to the upper branch beyondthe point where the initial shift to the new statehad occurred, due to hysteresis (see Figure 1b).Moreover, the effort needs to be coordinatedand collectively managed among the differentpastoralists and this may be very difficult oncethe system is already caught into the lowerequilibrium.

There are several cases cited in the literature

where local communities either on their ownor with the help of an external governmentalor nongovernmental agency have been able torestore the system to its original state or adifferent more productive state. 18 In otherinstances, such a restoration may be difficultand the best option for poverty alleviationmight be to find novel ways of dealing withthe modified state. These include shift in typesof crops grown, changes in stocking densitiesor types of animals, shift from herding to wild-life hunting, finding off-farm employment or

migration. As these changes may take time,there is also a need for creation or revival ofold safety nets that can help cushion the effectsof external shocks in the short to medium term.Examples of such safety nets include insuranceschemes, credit restocking programs and reci-procal exchanges. 19

5. CONCLUSIONS

In this paper, we have examined how global-

ization may affect the wellbeing of the poorthrough its effects on the local ecosystems onwhich the poor depend for their livelihood.

Drawing upon models from ecology, weshowed how nonlinearities, multiple steadystates, and threshold effects characterize manyof the ecosystems that the rural poor dependon. An important ecological concept that we

discussed in this context is that of ecosystemresilience. Resilience refers to the capacity ofan ecosystem to absorb shocks before undergo-ing a change in the structure of relations be-tween its constituent variables and processesthat control behavior. While neoclassical eco-nomics has focused almost exclusively on re-source productivity, we showed why resilienceis also an important factor, particularly whenone is trying to understand the long-term im-pact of different resource management regimes.Since the rural poor depend on local ecosys-

tems for their livelihood, a loss in resiliencetranslates into a greater vulnerability to pov-erty.

Resilience is a system-wide property that de-rives from the linkages and feedback effects thatexist been different ecological variables. There-fore, when the impact of a specific policy on asingle resource is analyzed in isolation fromthe rest of the ecosystem (as is generally donein studies exploring the link between tradeand environment), the impact on resilience isoverlooked. For instance, it is often the case

that a policy change or adoption of a new tech-nique increases productivity of a single resourcebut decreases the resilience of the ecosystem inwhich it is embedded. The prototypical modelof a semi-arid savanna ecosystem that we pre-sented in this paper, along with examplesdrawn from other ecosystems, helps us under-stand why this happens.

This is an important insight that opens upnew perspectives for exploring the links be-tween globalization and local ecosystems. Forexample, we discussed how trade liberalization

policies in developing countries often lead tospecialization in the production of a narrowrange of natural resource based activities.While the static efficiency gains that followfrom such specialization are well known, otherlong-term effects on the ecosystem are lesswidely recognized. An important long-term ef-fect that we discussed in the paper is the lossin bio-diversity that leads, in turn, to a loss inresilience and a consequent increase in poverty.Similarly, we discussed several other examplesto show how international technology transfers

may increase short-term resource productivitybut decrease ecosystem resilience. These exam-ples shed light on some of the mechanisms

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through which globalization, although leadingto new growth opportunities, may increase pov-erty.

The example of the semi-arid savanna ecosys-tem also helps in understanding the interaction

between different variables in the ecosystemthat operate along different temporal and spa-tial scales (some change fast while otherschange slow, some have only a local effect whileothers are more widespread). As ecologistspoint out, it is these cross-scale interactionsthat determine system behavior. Drawing uponthis insight, we showed how globalization canbe viewed as an external shock that bringsabout rapid change in some variables (likeprices or technologies) while other variables(like institutions and culture) remain sluggish.

It is this change in structure of relations be-tween different constituent variables, operatingalong different scales, which ultimately resultsin different outcomes. Although it may seemthat the resulting equilibrium structure is deter-mined by the fast changing variables, the slowchanging variablessuch as institutionsarea critical determinant of which among the alter-native stable states is ultimately observed.

The linkages between ecosystem and institu-tional dynamics that we have sketched here,somewhat informally, need to be developedmore rigorously and tested empirically. This islikely to be challenging given the cross-disci-

plinary nature of such an inquiry.20

Most ofthe current debates on globalization have fo-cused on the growth of MNCs, the rising influ-ence of multilateral institutionssuch as theWorld Bank, the IMF, and the WTOandthe loss in national sovereignty. We have notexplicitly discussed these factors in this paper.This is not because we do not perceive thesefactors to be important but because the over-whelming emphasis given to them often dis-tracts attention from our basic understandingof the underlying dynamic evolution of ecosys-

tems and human systems. An important conse-quence of this mode of thinking is that we haveplaced far too much attention to control ofexternal shocks and short-term crisis manage-ment as opposed to addressing the underlyingproblems that lead to loss in resilience andchronic poverty.

NOTES

1. Most of the studies on this subject use reduced formestimations and do not shed much light on the causalmechanisms through which globalization affects poverty.

2. An important exception here is Lopez (1997) whoexamines the effect of trade liberalization on exploitationof biomass through a more than optimal level of landcultivated for the case of Ghana.

3. For a comprehensive collection of papers on the

subject, see Clark and Munn (1986), Gunderson andHolling (2001), and Berkes and Folke (1998).

4. It is difficult to capture the changes in ecosystems bya single state variable. However, since many aspects ofthe ecosystem shift in concert with a few important keystate variables, we focus on a single aggregate variablesuch as plant biomass (see also Scheffer et al., 2001).

5. The model presented here is based on Walker,Ludwig, Holling, and Peterman (1981).

6. Gunderson and Holling (2001) and Berkes andFolke (1998) contain several case studies that make thisobservation.

7. This is a common methodology followed in severalpapers on trade and environment. See, for instance,Grossman and Krueger (1993) and Copeland and Taylor(2004) for detailed definitions of these effects.

8. Instead of extraction of natural resources, when onelooks at pollution from manufacturing plants, then itmay be true that composition effect works against thescale effect. This is because more pollution intensiveindustries also tend to be more capital intensive (Cope-land & Taylor, 2004). Thus, it might be the case thatdeveloping countries have a comparative disadvantagein these dirty industries and thus with trade liberaliza-tion, there is a fall in pollution. Copeland and Taylor(2004) present a simple theoretical model to clarify theconditions under which these different outcomes mightarise.

9. Holling (1986) gives the example of cycles of groundfire experienced prior to fire management in the mixed-conifer forests of the Sierra Nevada in western UnitedStates. He points out that in several areas, these firesoccurred with a remarkably consistent interval of sevento eight years, and helped maintain conditions of treeregeneration and nutrient cycling. In addition, theselight fires killed only the young white fir thereby

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introducing and maintaining gaps in forest canopy and,in essence, producing natural fire breaks. However, if theundersurface is raised because of increased moisture oreffective fire control practices, more fuel must accumu-late before an average ignition event triggers a fire. This

results in a longer period before a fire but also in a moreintense fire (p. 302).

10. The recent controversies associated with the diffu-sion of Genetically Modified crops in developing coun-tries illustrate this phenomenon very well. In particular,for the case of Bt cotton in India, Sahai and Rahman(2003) discuss how these crops were allowed to beadopted by farmers without adequate investigation oftheir long-term effects on the local ecosystem andwithout appropriate biosafety regulations.

11. Young (2004) provides a good collection of paperson the role of MNCs.

12. While environmental groups often make this argu-ment, Pearce, Adger, Maddison, and Moran (1995) findonly limited empirical evidence to suggest that the effectof international debt on environment is significant.

13. Altieri (2002) provides a comprehensive survey ofthese studies.

14. As Altieri (2002) points out, enhanced yields indiverse cropping systems may result from a variety ofmechanisms such as more efficient use of resources(light, water, nutrients) or reduced pest damage. Inter-cropping, which breaks down the monoculture structure,

can provide pest control benefits, weed control advan-tages, reduced wind erosion, and improved waterinfiltration.

15. An important caveat here is that we still understand

very little about institutional dynamics to make anydefinitive predictions. See, for instance, Bardhan (1989)for some reflections on this theme.

16. However, it is important to bear in mind that anincrease in value of a local natural resource may notalways lead to breakdown of existing institutions andresource degradation. For instance, there are a numberof cases where specific natural resources became majordeterminants of tourist revenue as in countries likeEcuador, Bhutan, Maldives, and Seychelles (WorldBank, 2002). In these cases, since tourist revenue

depended on keeping the local ecosystems healthy,environmental regulation was strengthened in order toprotect the resources (Wheeler, 2000).

17. See, for instance, the case studies given in Berkesand Folke (1998) and Gunderson and Holling (2001).

18. Ghai and Vivian (1992) and Chopra (2001) citeseveral such cases.

19. Niamir-Fuller (1998) gives several examples ofrevival of these traditional safety net mechanisms in

the Sahel region.

20. However, it is encouraging to note the efforts beingmade in this direction, particularly in the emerging fieldof ecological economics.

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