Jan. 20, 1994
Vol. 13, No. 10

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    Environmental cleanups linked to economic issue

    Mexico is on the verge of an expanded environmental cleanup, but not as a result of agreements concluded in connection with the North American Free Trade Agreement, contends Don Coursey, Professor in the Irving B. Harris Graduate School of Public Policy Studies.

    "The growth in national income will probably make Mexico more attentive to the environment," said Coursey, who studies the relationship between the economy and the environment. "The income level of approximately $5,000 per capita seems to represent a critical threshold level in explaining demand for environmental quality, and Mexico is approaching that level."

    In developing countries, environmental cleanups are viewed as something of a luxury and are not undertaken until the governments of those nations determine that the nations can afford them, Coursey writes in his paper "The Demand for Environmental Quality."

    Coursey's view counters other interpretations that link environmental cleanup with noneconomic issues. Other scholars have looked at such factors as concern brought on by environmental disasters and increased availability of environmental information as reasons why a nation begins to invest more heavily in environmental cleanup.

    None of those explanations seems to make as much of a difference as income, according to Coursey. Reports on environmental cleanups in developing countries also support the importance of income as a factor in improving the environment, he said.

    "People who visited nations such as Thailand several years ago observed a large amount of environmental degradation," Coursey said. "But visitors now report that the nations are cleaning up their local environments to a remarkable degree. The reason for this is that their incomes are rising to the threshold level."

    The strong correlation between income and environmental expenditures shows that people believe that environmental spending is "in the category of being a luxury good," because spending on environmental improvements only takes place when other basic desires are satisfied.

    Data from the United States also confirm Coursey's theory. In order to gauge public interest in the environment, Coursey examined responses from Gallup Polls and records on congressional action on environmental legislation.

    The Gallup Survey of American Attitudes, which has been conducted since 1936, seeks to determine issues of importance to Americans. Until fairly recently, few people identified environmental issues as being particularly important to them.

    The interest began in the late 1970s when the Gross Domestic Product reached $4,500 per capita (measured in 1992 dollars, the bench mark used in the study), according to Coursey. Interest peaked in the late 1980s during a period of relative economic prosperity, when 3.5 percent of the respondents identified the environment as an important concern.

    Coursey's research also showed an increase in congressional activity related to the environment during the same period. "The proportion of both submitted bills and passed bills was trivial until the late 1960s. Since that time both proportions have increased, with the total number of considered bills reaching approximately 20 percent and the total number of laws passed reaching 25 percent at the end of the 1980s," he said.

    Coursey found similar trends in the relationship between income and environmental concerns in examining data from 16 advanced industrial nations that are part of the Organization for Economic Cooperation and Development. He also found relationships between such factors as income, education and longevity.

    "The differences in behavior across these 16 countries and for a given country over time are highly income-correlated," he said. "There is a threshold level of income below which expenditures on pollution abatement are zero. After this threshold is reached, expenditures rise with real per capita income. Measured in 1992 dollars, this threshold level of per capita income is approximately $4,500."

    The data also suggest that as income rises to $10,000 per capita, carbon dioxide emissions per unit of output decrease. The relatively advanced members of the group, countries such as France and Sweden, achieve cleaner environments by depending more on nuclear fuels for their energy needs.

    The influence of income on other quality-of-life issues is evident in data from developed and developing nations, where increases in income, education and population density correlate with an increase in life expectancy. Increased longevity among people living in more heavily populated areas can probably be attributed to a greater access to physicians, Coursey said.

    As income rises, the causes of death also change. People in lower-income societies are more likely to die of infectious diseases, while cancer and heart disease are more common causes of death in advanced countries. Investment in sanitation facilities, the most common environmental improvement, probably explains the difference, he said.

    Much of Coursey's research career has been spent studying the economic ramifications of environmental decisions. Among his research projects are three projects conducted with support from the Environmental Protection Agency. He has studied experimental methods for assessing environmental benefits and ways of improving the accuracy and reducing the costs of environmental-benefit assessments.

    Coursey joined the Harris School faculty this academic year after serving as the Vernon W. and Marion K. Piper Professor of Business Economics at Washington University in St. Louis. He was also director of the Business, Law and Economics Center of the John M. Olin School of Business there.

    -- William Harms