economic integration, environment, and development: mexico before and after nafta
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Economic Integration, Environment, and Development: Mexico Before and After NAFTA. Kevin P. Gallagher Global Development and Environment Institute Tufts University www.ase.tufts.edu/gdae. Overview of Presentation. - PowerPoint PPT PresentationTRANSCRIPT
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Economic Integration, Environment, and Development:
Mexico Before and After NAFTA
Kevin P. Gallagher
Global Development and Environment Institute Tufts University
www.ase.tufts.edu/gdae
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Overview of Presentation
• To what extent has economic integration affected levels of environmental degradation in Mexico?
– Is there an Environmental Kuznets Curve for Mexico?
– Is Mexico a Pollution Haven?
• Implications for assessments, theory and policy
• Suggestions for further research
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Composition of Mexican Exports, 1981 to 2000
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Fra
ctio
n o
f to
tal E
xpo
rts El Pacto
Apertura
NAFTA
Manufactures
Oil
Agriculture
`
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Environmental Kuznets Curve
0 5000 10000 15000 20000 25000
GDP per Capita
250 -
200 -
150 -
100 -
50 -
0 -
Pol
lutio
n p
er ca
pita
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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
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Problems with the EKC
• Empirical evidence is relatively weak– Limited to criteria air pollutants in developed countries– Turning points much higher than original estimates– Doesn’t hold 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
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EKC for SOx?
R2 = 0.6653
1,500,000
1,700,000
1,900,000
2,100,000
2,300,000
2,500,000
2,700,000
2,900,000
4700 4800 4900 5000 5100 5200 5300 5400 5500 5600 5700
Income
Po
llu
tio
n
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EKC for Carbon Dioxide? 1970 -2000
0
20,000
40,000
60,000
80,000
100,000
120,000
3,500 4,000 4,500 5,000 5,500 6,000
GDP per capita
Car
bo
n D
ioxi
de
Em
issi
on
s
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Is Mexico a Pollution Haven?
1988 1994 1998Mexico
production 30.1% 23.1% 26.5%employment 7.9% 6.3% 5.9%
USproduction 17.0% 15.1% 14.7%
employment 11.3% 11.2% 11.2%
Share of Dirty Industry in National Manufacturing
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• Y variables (84-99 and post-NAFTA)– Growth in Mexican exports– Growth in Mexican production– Growth in Mexican export share of US
consumption
• P variables– Marginal abatements costs in the US– Gap in Mexico/US pollution intensity
Yit=β1+β2Pit+…
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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
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Real Spending on Environmental Protection in Mexico
0.00
50.00
100.00
150.00
200.00
250.00
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
1985
=10
0
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Plant-Level Environmental Inspections in Mexico
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Num
ber
of In
spec
tions
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Side Agreement Limited
• $3 million budgeted for Mexico dwarfed by economic costs of environmental degradation
• Serves as interesting “pilot project” for serious effort– Citizen submissions– Research– Technical cooperation (PRTR)– Funds for clean development (FIPREV, NAFEC)
• Environmental components of trade agreements post-NAFTA are weaker than NAFTA”S
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Potential Economic Costs of Waiting for Kuznets in Mexico
GDP per capita Turning Point Year Damage Costs to Turning Point
(r=.06) (r=.03)
$7,500 2028 79 114$10,000 2057 105 194$15,000 2097 119 279
($US billions)
Economic Costs of Future Environmental Damage due to increases in Criteria Air Pollution in Mexico
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Summary of Findings
• No EKC-like relationship in Mexico (at least for now)
• Mexico is not a pollution haven for pollution-intensive US manufacturing firms
• Mexican government is not adequately addressing the market failures resulting from economic transformation
• International institutions not filling gap made by integration process
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Implications for Assessment
• Ex-post analyses have ex-ante lessons: liberalization won’t automatically improve or worsen the environment.
• Need to move beyond asking whether economic integration is “good” or “bad” for environment
• Need more sector-based analyses to pinpoint environmental effects
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Implications for Theory
• The role of the nation-state in the economic integration process
• Need for a pro-active state in addressing negative environmental externalities that coincide with the integration process
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Implications for Policy
• Without the proper environmental institutions and policies in place, liberalization may worsen environmental conditions
• Strong environmental policy is justified on economic grounds
• Strong environmental policy will not deter foreign investment flows to developing countries
• Strong environmental policy will not cause developed country firms to flee their countries (nor shed jobs)
• Substantial international financing can supplement developing country environmental goals
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Need for Further Research
• Need for time series data on levels of pollution
• Complement “top down” analysis with a “bottom up” approach that examines individual firms and sectors
• Firm-level case studies on location decisions, technology use and transfer, and environmental compliance
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P=S+C+T
• P = level of pollution
• S=ScaleSit=Pib(Ymt/Ymb -1)
• C=Composition
Cit=Pib((Yit/Yib) – (Ymt/Ymb))
• T=Technology?
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1984 to 1998(tons)
PTscale 12,966.11composition -2,813.20
net 10,152.91
SOxscale 23,614.27composition -14,152.79net 9,461.48
NOxscale 15,965.74composition 181.22net 16,146.96
NET Pollution in Mexican Manufacturing
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Harmonization IndexPollution per unit of output in Mexico divided by US equivalent
0.1
1
10
100
Rubber Pulp andPaper
Automotive Chemicals Beverages Iron andSteel
Aluminum Cement
Ord
ers
of
mag
nit
ud
e
Cleaner than in US
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End-of-pipe technology
Textiles
Iron and SteelCapital intensity
Pulp and Paper?
Core technology
Labor intensity
Assembly?
The Economics of Pollution Intensity: A Hypothesis
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Environmental Kuznets Curve for Mexico?
75
100
125
150
175
200
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Po
lluti
on
: 19
85=1
00
Soil Erosion (tons)
Solid Waste (tons)
Water Pollution (mill.M3)
Air Pollution (tons)
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Table 7.1: Pollution Intensity of the Mexican Economy
60
80
100
120
140
160
180
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
1985
=100
soil erosion
solid waste
water pollution
air pollution
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Criteria Air Pollution in Mexican Manufacturing
(84-98) 88-98 94-98
PTscale 12,966 9,998 18,426composition -2,813 -3,117 -1,878net 10,153 6,881 16,548
SOx
scale 23,614 18,209 33,559
composition -14,153 -16,330 -2,274net 9,461 1,879 31,284
NOx
scale 15,966 12,311 22,689
composition 181 -2,787 2,390net 16,147 9,525 25,079
net pollution (tons)
Table 5.4: Changes in Net Pollution, 1984 to 1998
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Is Mexico a Pollution Haven?
Table 4.3: Regression Results
Dependent Variables
84-99 B p values adj R 2B p values adj R 2
Growth in Mexican Exports 0.679 0.387 0.04 -0.00007 0.303 0.19Growth Mexican Production -0.119 0.792 0.03 -0.00005 0.139 0.001Growth in Mexican Export Share of US Consumption 0.399 0.648 0.04 -0.00006 0.496 0.14
post-NAFTA
Growth in Mexican Exports -3.82 0.577 0.04 -0.003 0.637 0.03Growth Mexican Production -1.204 0.401 0.03 0.00006 0.603 0.04Growth in Mexican Export Share of US Consumption -3.845 0.548 0.03 -0.003 0.592 0.003
N 27 27
Model 1Independent Variable:
Abatment Costs
Model 2Independent Variable:
Mexico-US intensity ratio