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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 – PowerPoint PPT presentation

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Title: Economic Integration, Environment, and Development: Mexico Before and After NAFTA


1
Economic Integration, Environment, and
DevelopmentMexico Before and After NAFTA
  • Kevin P. Gallagher
  • Global Development and Environment Institute
    Tufts University
  • www.ase.tufts.edu/gdae

2
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

3
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4
Environmental Kuznets Curve
5
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

6
Problems with the EKC
  • Empirical evidence is relatively weak
  • Limited to criteria air pollutants in developed
    countries
  • Turning points much higher than original
    estimates
  • Doesnt 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

7
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8
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9
Is Mexico a Pollution Haven?
10
Yitß1ß2Pit
  • 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

11
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

12
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14
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 NAFTAS

15
Potential Economic Costs of Waiting for Kuznets
in Mexico
16
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

17
Implications for Assessment
  • Ex-post analyses have ex-ante lessons
    liberalization wont 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

18
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

19
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

20
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

21
PSCT
  • P level of pollution
  • SScale
  • SitPib(Ymt/Ymb -1)
  • CComposition
  • CitPib((Yit/Yib) (Ymt/Ymb))
  • TTechnology?

22
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23
Orders of magnitude
Cleaner than in US
24
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25
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26
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27
Criteria Air Pollution in Mexican Manufacturing
28
Is Mexico a Pollution Haven?
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