Transcript AGEC 340 – International Economic Development Course slides for week 8 (March 2 &4) Is Growth Sustainable?* • Does economic growth use up.

AGEC 340 – International Economic Development
Course slides for week 8 (March 2 &4)
Is Growth Sustainable?*
• Does economic growth use up natural resources?
• Can economic growth be sustained over time?
* In the textbook, this material is in chapters 9 and 14.
Resource Use and Sustainability
• So far in AGEC 340 we’ve seen:
– Part I: basic facts
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

economic growth from low to high production & consumption
demographic transition from large to small families
structural transformation from farm to nonfarm activity
– Part II: microeconomics
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
if everyone already optimizes input use and production…
productivity grows only through new technology
• But new technology is limited by natural resources:


“natural” in that supply is fixed (land, water, air etc.)
 cannot make more of them, even if their value rises
“natural” in that supply is not under individual control
 ownership is collective, so use is less likely to be optimized
Economic growth involves switching
from natural to man-made resources
The textbook story, from chapter 14:
BOX 14-1: INPUT USE AND AGRICULTURAL OUTPUT IN INDIA
acreage expansion ends
yield increase takes over
fueled by control of water and fertilizer
and made possible by new plant genetics
The race between people and land, so far…
Trends in farm size and yields by region, 1961-1990
Diagonals have same farm size (ha/worker):
Y axis
shows
yield
(output
per
hectare):
X axis shows earnings (output/worker):
so… why no green revolution in Africa?
Slide 5
Fertilizer use is not converging to world levels,
as it did in Asia
Fertilizer Use (N+P+K), 1961-2002
100
SSAfrica
SouthAsia
10
E&SEAsia
RestWorld
1
19
61
19
65
19
69
19
73
19
77
19
81
19
85
19
89
19
93
19
97
20
01
kg per ha of arable land .
1000
One reason for Africa’s lag is that its
soils and moisture are unusually difficult
Selected Soil Fertility Constraints in Agriculture
(as percent of agricultural area)
SSA
Southeast Asia
South Asia
East Asia
Global Total
Low
Low
Cation
Moisture
Exchange Holding
Capacity Capacity
15.9
23.2
2.3
6.0
0.7
7.9
0.1
1.8
4.2
11.3
Note: Constraints characterized using the Fertility Capability Classification
(Sanchez et al., Smith).
Source: Stanley Wood (2002), IFPRI file data.
Africa gets relatively little rainfall
…and Africa’s rainfall may have worsened in the
1960-1985 period
Source: S. Barrios, L. Bertinelli, and E. Strobl (2006), “Climate Change and
Economic Growth: Evidence from Africa.” University of Luxebourg: CREA.
But crucially, most African farmers still use old
seed types; new seeds are coming out now
Source: Calculated from data in Evenson and Gollin, 2003.
And a key reason for that is simply
that Africa has had less local research
Public Research Expenditure per Unit of Land, 1971-91
(1985 PPP dollars per hectare of agricultural land)
4
3
2
1
0
Sub-Saharan Africa
All Developing Countries
Source: Calculated from IFPRI and FAOStat file data
All Developed Countries
Africa faces unusually severe population pressures
Annual Percent Growth in Total Population 1950-2030,
Calculated from UN/FAO Estimates
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1950-60
1960-70
Total SSA
1970-80
South Asia
1980-90
1990-2000
E&SE Asia
2000-2010 2010-2020 2020-2030
Rest of World
World Total
Rural population growth is especially important
SS Africa
South Asia
E & SE Asia
Rest of World
2.5%
Rural pop. growth rate
(percent per year)
2.0%
1 .5%
1 .0%
0.5%
0.0%
-0.5%
30
020
20
2
0-
20
20
0
20
1
0-
20
1
0
20
0
20
0
19
90
-
-9
0
19
80
-8
0
19
70
70
19
60
-
19
50
-6
0
-1 .0%
Figure 11. Rural Population Growth by Region, 1 950s-2020s
Changing age structure imposes another burden
No. of children (0-14) per adult (15-64)
.
Past and Projected Child Dependency by Region, 1950-2015
1.00
0.90
0.80
0.70
0.60
0.50
Africa
Asia
Rest of the World
0.40
0.30
0.20
1950
1960
1970
1980
1990
2000
2010
Source: UN Population Division, World Population Prospects:
The 2002 Revision . Available online at <http://esa.un.org/unpp>.
To respond to farmers’ needs, crop
improvement involves multiple innovations
Genetic improvement
Agronomic improvement
(by scientists, using
controlled trials)
(by farmers, using land &
labor)
New techniques to manage soils and
conserve moisture are spreading
traditional
“flat” planting
labor-intensive
“Zai” microcatchments
For these fields, the workers are:
Slide 16
Resource Use and Sustainability
• The information we’ve seen so far implies
that farmers are already doing the best they
can -- and yet observers may feel that some
farmers “overuse” certain resources.
• For example, in Indiana as in many places
around the world, some water supplies are
affected by runoff of farmers’ fertilizers,
herbicides or pesticides. Do farmers use “too
much” of these inputs? To answer, we must
ask how this information enters our picture...
How do inputs enter farmers’ optimal choices?
Qty. of corn
Qty. of corn
Qty. of labor
(bu/acre)
(bu/acre)
(hours/acre)
iso-profit
iso-revenue
(slope=Pf/Pc)
(-Pb/Pc)
iso-cost
(slope=-Ph/Pm)
Qty. of fert.
(lbs/acre)
Qty. of beans
(bushels/acre)
Qty. of herbicide
(liters/acre)
To include runoff costs of input use, we would
add water users’ costs to prices paid by farmers:
Qty. of corn
(bu/acre)
slope= (Pf+runoff)/Pc
slope= Pf/Pc
runoff costs added
to farmer’s cost
Qty. of fertilizer
(lbs/acre)
Qty. of labor
(hrs/acre)
slope= -(Ph+runoff/Pl)
slope= -Ph/Pl
Qty. of herbicide
(liters/acre)
…so that from the whole society’s point of view,
a lower level of input use would be optimal:
Qty. of corn
(bu/acre)
slope= (Pf+runoff)/Pc
slope= Pf/Pc
Qty. of fert.
(lbs/acre)
new optimum
from adding
runoff costs to
farmer’s cost:
lower inputs,
lower outputs,
more work for
farmers.
Qty. of labor
(hrs/acre)
slope= -(Ph+runoff/Pl)
slope= -Ph/Pl
Qty. of herbicide
(liters/acre)
How can the country move
from point A to point B?
Qty. of corn
(bu/acre)
Qty. of labor
(hrs/acre)
A
B
slope=social costs
slope=farmer’s costs
optimum at social costs
optimum at farmer’s costs
B
A
Reductions in input use to take account
of off-farm costs to drinking water
To reach the social optimum,
we’d need either a tax:
Qty. of corn
(bu/acre)
tax on input use
to induce change
Qty. of labor
(hrs/acre)
A
B
B
A
To reach the social optimum,
we’d need either a tax, or a regulation:
Qty. of corn
(bu/acre)
tax on input use
to induce change
Qty. of labor
(hrs/acre)
A
B
B
A
rules specifying new input use levels
In conclusion, to set environmental
policies… what would we need to know?
• To set optimal taxes, we’d need to know the cost
per unit of the runoff to water users.
• To set optimal rules, we’d need to know the new
optimal input-use level.
• Using taxes is likely to give closer-to-optimal
input use, but…
• Imposing taxes may be politically harder than
specifying rules, so
• Most governments use rules instead of taxes.