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 Overview of Presentation. - PowerPoint PPT Presentation

Text of Economic Integration, Environment, and Development: Mexico Before and After NAFTA

  • Economic Integration, Environment, and Development:Mexico Before and After NAFTAKevin P. GallagherGlobal Development and Environment Institute Tufts

  • Overview of PresentationTo 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

  • Environmental Kuznets Curve

  • Environmental Kuznets CurveScale Effects: if pollution per unit of output is constant but the scale of output increases then pollution will increase as wellComposition Effects: if pollution per unit of output remains unchanged but the sectoral composition of the economy shifts toward cleaner or dirtier economic activityTechnique Effects: reductions in pollution per unit of output due to technological change and transfer and/or rising incomes

  • Problems with the EKCEmpirical evidence is relatively weakLimited to criteria air pollutants in developed countriesTurning points much higher than original estimatesDoesnt hold for single country trajectoriesDamage leading to turning point could be irreversible or too costly to clean upDrawing single-country development lessons from cross-sectional evidence is questionable

  • Is Mexico a Pollution Haven?

  • Yit=1+2Pit+Y variables (84-99 and post-NAFTA)Growth in Mexican exportsGrowth in Mexican productionGrowth in Mexican export share of US consumptionP variablesMarginal abatements costs in the USGap in Mexico/US pollution intensity

  • Mexican environmental policy has been inadequateEstablished key environmental laws and institutionsSpending on environmental policy shrinkingPlant-level environmental inspections decliningSide-agreement institutions extremely limited

  • Side Agreement Limited$3 million budgeted for Mexico dwarfed by economic costs of environmental degradationServes as interesting pilot project for serious effortCitizen submissionsResearchTechnical cooperation (PRTR)Funds for clean development (FIPREV, NAFEC)Environmental components of trade agreements post-NAFTA are weaker than NAFTAS

  • Potential Economic Costs of Waiting for Kuznets in Mexico

  • Summary of FindingsNo EKC-like relationship in Mexico (at least for now)Mexico is not a pollution haven for pollution-intensive US manufacturing firmsMexican government is not adequately addressing the market failures resulting from economic transformationInternational institutions not filling gap made by integration process

  • Implications for AssessmentEx-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 environmentNeed more sector-based analyses to pinpoint environmental effects

  • Implications for TheoryThe role of the nation-state in the economic integration processNeed for a pro-active state in addressing negative environmental externalities that coincide with the integration process

  • Implications for PolicyWithout the proper environmental institutions and policies in place, liberalization may worsen environmental conditionsStrong environmental policy is justified on economic groundsStrong environmental policy will not deter foreign investment flows to developing countriesStrong environmental policy will not cause developed country firms to flee their countries (nor shed jobs)Substantial international financing can supplement developing country environmental goals

  • Need for Further ResearchNeed for time series data on levels of pollutionComplement top down analysis with a bottom up approach that examines individual firms and sectorsFirm-level case studies on location decisions, technology use and transfer, and environmental compliance

  • P=S+C+TP = level of pollution

    S=ScaleSit=Pib(Ymt/Ymb -1)

    C=CompositionCit=Pib((Yit/Yib) (Ymt/Ymb))


  • Orders of magnitudeCleaner than in US

  • Criteria Air Pollution in Mexican Manufacturing

  • Is Mexico a Pollution Haven?