environment, economic growth, and poverty march. 2012 yong-seong kim research fellow korea...
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Environment, Economic Growth, and Poverty
March. 2012
Yong-seong KIM
Research Fellow Korea Development Institute (KDI)
I. Introduction
II. Environment and economic growth, and poverty
III. Economic growth and poverty
IV. Policies for Pro-poor growth
V. Conclusions
Part-I Introduction
I. Introduction: Pro-poor growth
“Pro-poor growth” as a goal for twenty-first century.
MDG (the Millennium Development Goals) proposed the reduction of
poverty through a sustainable growth
Environmental issues as a key ingredient of a sustainable growth in G20
meeting in Toronto (2010)
The concept of “Pro-poor growth”
Rate of income growth of the poor > Rate of GDP growth (A and E)
Rate of income of the poor > 0 (A, B, C, and D)
I. Introduction: Pro-poor growth
0
45
E
A
B
D
C
rate of income growth of the poor
rate of GDP Growth
The Concept of “Pro-poor growth”The Concept of “Pro-poor growth”
Part-II Environment, economic growth
and poverty
II. Environment, economic growth and poverty
Environmental impacts on economic growth and poverty are
controversial.
Environmental awareness can bring welfare gains and new innovative
technologies: high growth rate and low poverty rate
Concerns that drastic measures for environmental protections might
cause economic distortions and instability: low growth rate and high
poverty rate
Focus on the impact of environmental issues on economic
growth and poverty from a macro economic perspective.
Examine the relationship between economic growth and poverty.
Investigate how environmental issues affect economic growth.
II. Environment, economic growth and poverty
Environment and economic growth: empirical perspective Inverse U-shaped relationship between environment and economic
growth(Environmental Kuznets Curve, EKC)
Results of empirical analyses are mixed and the relationship is ambiguous
Economic development
Environmental pollution
0
Environment and economic growth: EKC Environment and economic growth: EKC
II. Environment, economic growth and poverty
Economic growth and income distribution Inverse U-shaped relationship between income inequality and economic
development(Kuznets Curve)
Results of empirical analyses are mixed and the relationship is ambiguous
Stylized fact is “Economic growth is distribution neutral on average”
Economic growth and income distribution: KC Economic growth and income distribution: KC
Economic development
income inequality
0
II. Environment, economic growth and poverty
Environment and economic growth: theoretical perspective
Conventional approach predicts that measures for environmental
protection make an economy to operate below its production possibility
frontier, causing a decline in economic growth
A few theoretical model shows the possibility that environmentally
oriented economy can not necessarily experience a slowdown in
economic growth
Overlapping generation model shows that introduction of environment
measures may not necessarily decrease economic growth
Part-III Economic growth and poverty
III. Economic growth and poverty
Economic growth and poverty: Empirically stylized facts
Economic growth tends to reduce poverty rate in the long-run.
Policy attempts to lower inequality reduce poverty rate in the short-run
Economic growth together with appropriate efforts to reduce income
inequality is necessary for poverty reduction and sustainable growth
III. Economic growth and poverty: Korean case
Economic growth and poverty: Korean Case
Dramatic reduction in the absolute poverty rate:
82%(1982) → 9.2%(2007)
Rapid economic growth during those periods is a main determinant in
the reduction of the poverty rate
III. Economic growth and poverty: Korean case
Absolute poverty: Korea 1982~2007Absolute poverty: Korea 1982~2007
0
20
40
60
80
100
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Source: National Statistical Office, Family Income and Expenditure Survey, various years
III. Economic growth and poverty: Korean case
Decomposition of growth and distributional effect: Korean Case
‘Pure growth effect’ is dominant in reducing poverty over time in Korea.
Currently, the ‘distributional effect’ operates in a direction to raise
poverty rate.
III. Economic growth and poverty: Korean case
Decomposition of Growth impacts on the poverty rate: Korean CaseDecomposition of Growth impacts on the poverty rate: Korean Case
Year Elasticity of poverty rate Pure growth effect Distributional effect82/83 -0.55 -0.54 -0.0183/84 -0.66 -0.67 0.0184/85 -0.67 -0.76 0.1085/86 -0.97 -0.94 -0.0386/87 -1.17 -1.19 0.0287/88 -1.46 -1.55 0.0988/89 -2.16 -1.98 -0.1889/90 -3.31 -2.50 -0.1890/91 -2.92 -2.65 -0.2891/92 -3.46 -3.12 -0.3392/93 0.94 -2.99 3.9393/94 -3.26 -2.67 -0.5894/95 -1.87 -2.63 0.7595/96 -3.32 -2.77 -0.5596/97 3.04 -3.24 6.2797/98 -4.11 -2.52 -1.5998/99 0.36 -2.10 2.4699/00 -5.48 -2.49 -2.9900/01 -1.27 -2.61 1.3501/02 -3.38 -2.87 -0.5102/03 -6.99 -1.50 -5.4903/04 -1.15 -1.79 0.6304/05 3.70 -1.80 5.5005/06 -1.02 -2.18 1.1606/07 -0.96 -1.64 0.68
Source: Yoo (2008)
Part-IV Policies for Pro-poor growth
IV. Policies for Pro-poor growth
Economic growth and income inequality
Positive relationship between income inequality and growth: For
investment to happen, someone need to be rich and redistribution policy
generally discourages economic Incentive
Negative relationship between income inequality and growth: In an
unequal society, majority favors progressive tax, reducing growth
Policy choice for sustainable economic growth
Unequal distribution is detrimental to economic growth and capital
accumulation.
Human capital investment is a useful policy tool for sustainable
economic growth
IV. Policies for Pro-poor growth
Determinants of growth and investmentDeterminants of growth and investment
(1)INEQ on GR, INV
(2)DEM on GR, INV
(3)HUMCAP on GR,
INV
(4)INEQ on INSTAB
(5)INSTAB on GR,
INV
1. Alesina-Rodrik (94) 2. Alesina-Perotti (96) 3. Alesina et al (96) -4. Barro (96) M= F= 5. Benhabib-Spiegel (96) (-) 6. Bourguignon (94) (-)7. Brandolini-Rossi (95) 8. Clarke (92) 9. Deininger-Squire (95) (-) (±) +10. Easterly-Rebello (93) (±)11. Keefer-Knack (95) (-) 12. Levine-Rebello (93) -13. Lindert (96) 14. Perotti (92) + 15. Perotti (94) 16. Perotti (96) M= F= 17. Persson-Tabellini (92) 18. Persson-Tabellini (94) - 19. Svensson (93) + 20. Venieris-Gupta (86)
Note: Symbols: , : consistent, sign and generally significant; +, -: consistent sign, sometimes significant; (+), (-): consistent sign but generally not significant, (±): inconsistent sign with significant coefficient; ; inconsistent sign or close to zero, and not significant; : inverse U-shaped, significant. INEQ: Measures of inequality DEM: Measures of political rights and degree of democracy HUMCAP: initial stock of human capital INSTAB: socio-political instabilitySource: Benabou(1996), NBER Working Paper No. 5658.
IV. Policies for Pro-poor growth
Socio-economic policies for sustainable growth: OECD case Tax policy appears to be ineffective
Unemployment benefits and public health policy improve income distribution without causing negative effects on economic growth
Policies, economic growth and income distributionPolicies, economic growth and income distribution
Growth Inequality
Social Expenditures
Old age cash benefits -2056*** -0.463
Family cash benefits -0.292 -0.513**
Active labor market -0.419 -1.439
Unemp benefits 1.625*** -1.648***
Health 1.524** 0.237
Tax
Income tax -0.248*** 0.087
Sales & VAT -0.802*** 0.311
R-square 0.770 0.495
Note: *** = 99%, ** = 95%.Source: Kim(2004).
Part-V Conclusions
V. Conclusions
Economic growth, poverty reduction and environment
Environmental regulations may not be necessarily growth-reducing.
Growth is not a sufficient condition for poverty reduction due to growth
and distributional effects
Policy recommendations for sustainable growth
Tax on capital may not be a good choice, while environmental tax may
be.
A government cautiously selects distributive policies : human capital
investment, welfare to wotk, and public health may be desirable.