From economic growth to sustainable development lessons for vietnam

VIETNAM-NETHERLANDS PROGRAMMEFORM.AINDEVELOPMENTECONOMICS FROMECONOMICGROWTHTOSUSTAIN ABLEDEVELOPMENT:LESSONSFOR HOCHIMINHCITY,NOVEMBER2012... LISTOFTABLES Table2.1:Expectationtheinfluen

FROMECONOMICGROWTHTOSU STAINABLEDEVELOPMENT:LE

VIETNAM-NETHERLANDS PROGRAMMEFORM.AINDEVELOPMENTECONOMICS

FROMECONOMICGROWTHTOSUSTAIN ABLEDEVELOPMENT:LESSONSFOR

HOCHIMINHCITY,NOVEMBER2012

16

ACKNOWLEGDEMENT

Iwouldliketoexpressmygreatestgratitudetorespectfulsupervisors,AssociateProfes

sors–Dr.PHAMHOANGVAN,BaylorUniversityandDr.NGUYENTRONGH O A I ,VicePresidentofUEH.Theyalreadyhelpedandsupportedmemanyinterestingcourses,especiallyvaluableadvice,guidan

ceandinspirationformefinishthisstudyontime

IalsowanttoexpressmythankstoallProfessoroftheMDEProgramduringthepastt w o years(2009-

2011),myfriendsofMDE16,UEHadministrativestaffatEconomicDevelopmentFaculty,whosupportedmanyusefuldocumentsandmaterials.Icannotforgett h e supportfrommybigfamilyallthetimeIfollowedthisprogram

Atlastbutnottheleast,IamsosorryandwouldliketosharemycondolenceswhenProfessorKARELJANSEN-whohadgreatcontributionstotheprogram-passedaway.T h a t wasreallyabiglossforallofus

Bestregards

NGUYENTHIHONGMDE

16

ABSTRACT

Inthescenesofstrongeconomicdevelopmentallovertheworldduringsomedecadesago,thenewproblemsthatarehappeningeverywhereistheconsequenceofprogresscanbeattractmoreconcernsofeconomists.Thatisthetrade-

offofeconomicachievementsandthedegradationofenvironment,theexploitationofnaturalresources,theglobalwarming,theriseo f sealevelandsoon.Thenewconceptaboutdevelopment-sustainabledevelopment-nowbecomesfamiliar.Itisaneweconomicapproachtoexpressthedevelopmentwhichcarenoto n l y economicgrowthbutalsoreservationofthenaturalresources,theenvironmentalp o l l u t i o n , theinvestmentoneducation

Fromthatpointofview,byusingdataof90countries,theauthorhopestofindoutther e l a t i o n s h i p betweensustainabledevelopmentandotherdeterminantssuchasGDPgrowth,exportofnaturalresourcesandagriculturalproducts,urbanpopulationgrowth,HumanDevelopmentIndex,corruptionimpactandsoon.Istronglybelievethatthediscoveryoft h e s e relationshipscanprovidesomevaluablelessonsfordevelopmentprogressford e v e l o p i n g countriesandVietnam

Keywords:sustainabledevelopment,economicgrowth,adjustednetsavings

TABLEO F CONTENT

DECLARATION i

ACKNOWLEGDEMENT ii

ABSTRACT iii

TABLEOFCONTENT iv

LISTOFABBREVIATIONS vi

LISTOFTABLES vii

LISTOFFIGURES,GRAPHS viii

CHAPTERI 1

INTRODUCTION 1

1.1 Researchbackground 1 1.2 Statementofproblem 2

1.3 Researchobjectives 3

1.4 Researchquestions 4

1.5 Researchmethodology 4 1.6 Structureofthesis 5

CHAPTERII 6

LITERATUREREVIEWFORSUSTAINABLEDEVELOPMENT 6

2.1 Conceptsofeconomicgrowth,economicdevelopmentandsustainabledevelopment 6

2.2 Approachesofsustainabledevelopment 8

2.3 Objectivesandsignificanceofsustainabledevelopment 10

2.4 Indicatorsofs u s t a i n a b l e development 11

2.5 Linkageofvariousdeterminantsofsustainabledevelopment 14

2.6 Benefitsanddrawbacksofadjustednetsavings 15

2.7 EmpiricalModels 16

2.8 Empiricalstudiesrelatingtosustainabledevelopment 22

2.10Chapterremarks 30

CHAPTERIII 32

RESEARCHMETHODOLOGYANDDATACOLLECTION 32

3.1 Econometrictechniques 32

3.2 Datacollection 35

3.3 Dataanalysis 35

3.4 Chapterremarks 36

CHAPTERIV 37

RESEARCHRESULTS 37

4.1 Descriptivestatistics 37

4.2 Relationshipbetweenadjustednetsavingandotherfactors 41

4.3 Empiricalanalysis 44

4.4 Chapterremarks 53

CHAPTERV 55

SUSTAINABLEDEVELOPMENTINVIETNAM 55

CHAPTERVI 58

CONCLUSIONSANDRECOMMENDATIONS 58

6.1Mainfindings 58

6.3 Limitationsofthesistitle 61

6.4 Furtherresearch 61

REFERENCES 62

A PP ENDIX

WCED WorldCommissiononEnvironmentandDevelopment

LISTOFTABLES

Table2.1:Expectationtheinfluenceofdeterminantsonadjustednetsavings 22

Table2.2:Summaryofempiricalstudiesrelatingtosustainabledevelopment 27

Table4.1:Descriptivestatistics 39

Table4.2:Covarianceandcorrelation 40

Table4.3:RegressionadjustednetsavingsandGDPgrowthratesbyOLS 44

Table4.4:RegressionadjustednetsavingsandGDPgrowthratesbyTSLS 46

Table4.5:RegressionadjustednetsavingsandGDPpercapitabyOLS 47

Table4.6:RegressionadjustednetsavingsandGDPpercapitabyTSLS 48

Table4.7:RegressionadjustednetsavingsonExportofagriculturalrawproducts 50

Table 4.8:RegressionadjustednetsavingsonExportofnaturalresources 51

Table4.9:RegressionadjustednetsavingswithGDPgrowthratesindevelopingcountries .5 2 Table4.10:Summaryresults 54

Table5.1:VietnamData 55

LISTOFFIGURES,GRAPHS

Figure2.1:Linkageofvariousdetermiantsofsudtainabledevelopment……….15Graph2.1:Howtocalculateadjustednetsavings 12Graph2.1:Conceptualframework 30Graph4.1:RelationshipbetweenAdjustednetsavingsandGDPgrowths(1996-

2010).41Graph4.2:RelationshipbetweenAdjustednetsavingsandandGDPPC2010 42Graph4.3:RelationshipbetweenAdjustednetsavingsandexportofagriculturalrawproductsi n period1996-2010 42Graph4.4:RelationshipbetweenAdjustednetsavingandandexportofnaturalresourcesinperiod1996-2010 43Graph4.5:RelationshipbetweenAdjustednetsavingsandGDPgrowthofdevelopingc o u n t r i e s inperiod1996-2010 44

CHAPTERIINT RODUCTIO

N

1.1 Researchbackground

EconomicgrowthaffectsnationalwealthorincomepercapitabyincreasingitsGrossD o m e s t i cProductionorGrossNationalIncome.Researchabouteconomicgrowthanditsinfluencesonenvironmentands o c i e t y alwaysattractinterestfromeconomistsalloverthew o r l d Moreover,sometargetsofeconomicgrowtharedirectlytothesustainableuseofthesen a t u r a l resourcesandenvironmentalprotection.Itmeansthateconomicgrowthisnotatall;m a n y countriesaresavingoftheirscarenaturalresourcesthaninsomepastdecadesforfuturegenerationsinsteadoftheexploitingthemandnotpayinganyattentiontotheseenvironmentaldegradation

SincethefirstappearanceintheBrundtlandreportatWorldCommissiononE n

v i r o n m e n t andDevelopmentin1987,theconceptofsustainabledevelopmenthasbecomep o p u l a rinmanycountries.1T h erelationshipbetweeneconomicgrowthandsustainabledevelopmenthasconsiderationfromeconomists.Expressingsustainabledevelopmentbygenuinesavingratesoradjustednetsavings,manystudiesfoundthatsustainabledevelopmenth a s aconsistentrelationshipwitheconomicgrowth

Hamiltonetal

(1999)measuredgenuinesavingratesofcountriesbothdevelopinga n d developedcountries.Theserateswerecalculatedbycombinationofdifferentfactorsasgrosssavings,fixedcapitals,educationalexpendituresandpollutedemissions.Theyfoundt h a t genuinesavingrateswerepositivevaluesinhigh-

incomecountriesandnegativevaluesi n developingcountries.Negativeratesofgenuinesavingswouldleadtodecliningofwell-b e i n g 2

1 TheUnitedNations,ReportoftheWorldCommissiononEnvironmentandDevelopment:OurCommonF u t u r e , 1987

2 HamiltonC.

(1999),“Thegenuineprogressindicator:methodologicaldevelopmentsandresultsfromA u s t r a l i a ” Ecological Economics30:13–28.

5h t t p : / / d a t a w o r l d b a n k o r g / d a t a c a t a l o g / w o r l d

-2

Atkinsonetal

(2003)studiedtherelationshipbetweennaturalresourceabundancea n d growthrateofGDPpercapita.TheresultshowsanegativeandsignificantrelationshipbetweennaturalresourceabundanceandgrowthrateofGDPpercapita.3

BymeasuringgenuinesavingofTaiwanandUnitedKingdom-onedevelopedcountrya n d oneindustrialcountryinAsia,Graceetal

(2004)foundthatlowannualGDPgrowthrateo f UnitedKingdomcorrespondedlowrateofgenuinesavingratiotoGDP.4

AstudyofgenuinesavingsbyDietzetal

(2007),genuinesavingratesofrichandp o o r naturalresourcecountriesandsomefactorsaffectingthem.Theyfoundthatrichresourcec o u n t r i e s hadlowergenuinesavingratesthanpoorresourcecountries.Moreover,thisnegativeeffectwilldecreasewheninstitutionalqualityimproves

Therefore,economicgrowthaffectssignificantlytogenuinesavingrateofanation.M a n y otherfactorssuchasinstitutionalquality,abundanceofresourcesaffectedgenuines a v i n g ratesatdifferentlevels.Genuinesavingratesdependlargelyoneconomicgrowthrate;developedcountriesusuallyhavehighergenuinesavingratesthandevelopingcountries

1.2 Statementofproblem

EconomicgrowthratesofVietnaminsomedecadesagowereveryimpressive,e s p e c ia l ly afterVIETNAMimplementedits“DoiMoi”policyin1986.Sincethattime,VIETNAMhasfollowedtheseneweconomicstrategies,enhancingthemarketopennesswithinternationalcorporations.VIETNAMhasbecomeoneoftheeconomythathavehighe c o n o m i c growthratesinAsia.Economicgrowthhasgivenchancestoimprovestandardsofliving.However,afternearly30yearsofthe“Doimoi”stage,VIETNAMisstilloneofthesepoorestcountriesintheworldwithincomepercapitawasonly723$USin2010thoughtheaveragerateofeconomicgrowthinVietnamwasabout7.07%overtheperiodof1996-2010

5

(2004),“GenuinesavingsmeasurementanditsapplicationtotheUnitedKingdomandTaiwan”,TheDevelopingEconomiesXVII-d e v e l o p m e n t - i n (2004),“GenuinesavingsmeasurementanditsapplicationtotheUnitedKingdomandTaiwan”,TheDevelopingEconomiesXVII-d i c a t o r s

3

ComparingVietnamwithsomeothercountriessuchasSingaporeandtheNetherlandsi n theperiodfrom1996to2010,wecanseethatanannualaveragegrowthrateofGDPinSingaporewas5.87%,GDPpercapitain2010wasUS$32,641.WhiletheannualaverageG D P growthoftheNetherlandswasonly2.2%,GDPpercapitain2010isUS$26,553.SingaporeandNetherlandsarecountrieswithhighincomewhileVietnamisinalow-middle-

i n c o m e group.6Theproblemofnationswithhighereconomicgrowthratesbutlowerincomep e r capitahappensallovertheworld.Isthereaparadoxineconomicgrowthanddevelopment?

Inthiscontext,anewconcept-sustainabledevelopmentorgenuinesaving–

bringsa newlookforevaluatingthequalityofgrowthorthewealthofanation.Bybuildingontheb a s i s ofgrosssavingandcalculatingmanyotherfactorswhichconnecttofixedcapital,education,environmentandnaturalresources,itismoreusefulandvaluablethantheset r a d i t i o n a l indicators.Since1996,theWorldBankhasusedthisindicatorunderthename“adjustednetsaving”inWorldDevelopmentIndicators.ItalsopresentsintheLittleGreenDataBookfrom2000

Exploringtherelationshipbetweeneconomicgrowthandotheraspectsoflifesuchassociety,environment,naturalresources,theimpactofconsumptionofcurrentgenerationwitht h e futuregenerationsstillhasbeenlackinguntilnow,especiallyresearchesabouttheimpacto f economicgrowthonsustainabledevelopmentinVietnam

1.3 Researchobjectives

Thispaperwillanalyzetheimpactofeconomicgrowthandotherfactorsons u

s t a i n a b l e development,especiallysustainabledevelopmentinVietnam.Itusesdataof90n a t i o n s fromtheWorldBanksourceovertheperiodfrom1996to2010

Thesemainobjectiveswillbeasfollows:

1.3.1Evaluatingthesignificanceofeconomicgrowthonsustainabledevelopment

1.3.2 Evaluatingtheeffectofexportrawagriculturalproductsonsustainabledevelopment

1.4.5Willfastergrowthleadtosustainabledevelopmentindevelopingcountries?

1.4.6WhichlessonsshouldVietnamcouldapplytomaintainthestateofsustainabledevelopment?

1.5 Researchmethodology

Thispaperwillapplybothqualitativeandquantitativemethodsforestimatingtheimpacto f economicgrowthsuchasGDPgrowthonsustainabledevelopmentbyOLSestimation.Frommodelswhicharebuiltupbaseontheempiricalstudiesalongtimeago,thepaperwillb e setuphypothesesandtestthevalidityofproposedhypothesesbyeconometrictechniques.ForsolvingtheproblemsofendogeneitybetweensustainabledevelopmentandGDPgrowth,thepaperwillapplyTSLSestimation.Thisestimationisusedtotestwhetherornott h e r e

arereversecausationbetweenGDPgrowthandsustainabledevelopment.Itwillb e

appliedforfindingtheansweraboutthequestion:DohighadjustednetsavingsleadtohighG DP growth?7

1.6 Structureofthesis

ThisthesisconsistsofsixchaptersinwhichchapterIwillintroducethegeneralviewa b o u t thebackgroundofresearch,thenecessaryofthesisforVietnamcontextofeconomicgrowthandsustainabledevelopment.ChapterIIwillreviewliteratureabouteconomicgrowth,economicdevelopmentandsustainabledevelopment.Itwillalsodiscussempiricals t u d i e s donebyotherresearcherssomedecadesago.ChapterIIIwillshowthedatacollection,analysisdataandeconometrictechniques,whichapplyanalysisdata.ChapterIVwilldisplayt h e results,whichwerefoundoutbytestinghypothesisrelatingtomodelsinthisthesis.C h a p t e r VwillderiveastateofsustainabledevelopmentandsomemainpointsofAgenda21 inVietnam.Theendchapterwillsummariesallmainfindingsandsuggestssomeavailablepolicies.Italsoshowssomelimitationsofthisresearchtopicandsuggestsomefurtherp o s s i b i l i t i e s forfuture

7 Dimitrios

AsteriouandStephenG.Hall,AppliedEconometricsamodernapproach,revisededition,PalgraveM a c m i l l a n , 200 7.

CHAPTERII LITERATUREREVIEWFORSUSTAINABLEDEVELOPMENT

Thischaptersuppliesreviewliteraturethatrelatestotheeconomicgrowthands u s t a i n

a b l e development.Italsomentionstheirsignificance,methodsofthemeasurement,e m p i r i c a l studiesovertheworldsomepastdecades.Fromthat,Iwillsuggestappropriatem o d e l s f o r measuringt h erelationshipbetweene c o n o m i c g r o w t h a n d s u s t a i n a b l e development

2.1 Conceptsofeconomicgrowth,economicdevelopmentandsustainabledevelopment

2.1.1Economicg r o w t h

Economicgrowthisquantitativechangeorexpansioninacountry'seconomy.E c o n o

m i c growthisconventionallymeasuredasthepercentageincreaseinGDPorGNPduring oneyear(WorldBank)

Traditionally,economistshavemadelittledistinctionbetweeneconomicgrowthande c o n o m i c development.Economicgrowthisnecessarybutitisnotsufficientconditionfore c o n o m i c development.Moreover,GDPisstillanarrowmeasureofeconomicwelfare.Itd o e s notconsidertotheimportanceofotheraspects.Thosearemoreleisuretime,accesstohealthandeducation,environmentalprotection,freedomandsocialjustice

2.1.2Economicdevelopment

Whileeconomicgrowthusuallyreferstoincreaseinacountry'sproductionorincomep e r capita,economicdevelopmentmentionstobroadlyscope.FromthepointofviewofE.Wayne-

KansasStateUniversity-economicdevelopmentreferstoeconomicgrowthaccompaniedbychangesinoutputdistributionandeconomicstructure.Hestressedthattheimprovementinmaterialwell-

beingofthepoorerhalfofthepopulation,adeclineinagriculture'sshareofGNIandcorrespondingintheincreaseintheGNPshareofindustryandservice,anincreaseineducationandskilloflaborforceandsubstantialtechnicaladvancesoriginatingwithinthecountry.8

8 E.WayneNafziger,EconomicDevelopment,fourthedition,CambridgeUniversityPress,2006

Soeconomicdevelopmentisqualitativechangeinacountry'seconomyinconnectionw i t h technologicalandsocialprogress.MainindicatorofeconomicdevelopmentisincreasingG N P percapitaorGDPpercapita,reflectinganincreaseineconomicproductivityandaveragematerialwellbeingofacountry'spopulation

TheUnitedNationsDevelopmentProgram(UNDP)ranksthedevelopmentofanationbyHuma n D e

v e l o p m e n t Indexi n yearlyr epo rt s T h i s i n d e x c a l c u l a t e s t h e h u m a n developmentbycombiningthreefactors:income,lifeexpectancyandeducation

TheGINIindexmeasurestheincomedistributionbetweentherichandtotalincomeo f anation.Itstressestheequalityofincomedistribution.Thisproblemhappenswithinac o u n t r y andfromcountrytocountry.Italsooccursintopdevelopedcountries

2.1.3Sustainabledevelopment

Therehavebeenmanydifferentdefinitionsaboutsustainabledevelopment.TheU n i

t e d NationsBrundtlandreportatWorldCommissiononEnvironmentandDevelopmenti n 1987givesabasicideaaboutsustainabledevelopment.Thisconceptdefinessustainabledevelopmentas:“…

meetstheneedsofthepresentwithoutcompromisingtheabilityoff u t u r e generationstomeettheirownneeds "9

Thisdefinitionexpressedstronglythatthecurrentconsumptionofresourcesfore c o n o

m i c developmentshouldnotaffectfuturegenerations.Thisdefinitiongivesageneral

9 The

UnitedNations,ReportoftheWorldCommissiononEnvironmentandDevelopment:OurCommonF u t u r e , 1987,p.15

conceptfordevelopment;itdid notgiveawaytomeasurefactorscontributingonsustainability.

Pezzey(1992)definedsustainabledevelopmentasanon-decliningutility.Thisd e f i n i t i o n isoneofbasicconceptsinsustainabledevelopment.Moreover,PearceandA t k i n s o n (1997)developedanewparadigmofsustainabledevelopment,andtheyfavoront h e strongsustainability.10

2.2Approachesofsustainabledevelopment

Therea r e t w o p o s s i b i l i t i e s f o r s u s t a i n i n g growth.First,therei s insufficients u b s t i t u t a b i l i t y betweenreproduciblecapitalandnonrenewableresourcessothateconomicgrowthcanbesustainedwhilethenonrenewableresourcestocksdeclinecontinuously.S e c o

10 PezzeyJ.(1992),“SustainableDevelopmentconcepts.”WorldBankEnvironmentpaperNumber2

11 OECD,2001,“SustainableDevelopment:Criticalissues”,p.2

12 TheUnitedNations,2008,“MeasuringSustainableDevelopment”

Naturalcapitalmeansthe naturalresourcessuchascoal,oil,forest,landandreproducedcapitalmeanshumancapitalorhumanmadecapital.Becausehumanmadecapitalc a n substitutefornaturalcapitaltosomeextentreproduciblecapital,itcanreducesociety'srelianceonnaturalresourcesbyincreasingtheusefulnessofservicesprovidedbynonrenewableandrenewablestocks.

Weaksustainabilityrequiresahighdegreeofsubstitutabilitybetweenreproduciblea n d naturalcapital.Accordingtothisapproach,morevaluablehumanmadecapitalwillreplacethenaturalcapitalandthevalueofaggregatestockwillincreaseovertime

Strongsustainabilitystressesthesubstitutabilitybetweennaturalandreproducedcapital.Itisdifficulttoensurethatfutureeconomicopportunitiesaremaintainedwithouti m p o s i n g someconditionsonthedepletionofnaturalcapital

2.2.1Weaksustainability:theneoclassicalparadigm

Weaksustainabilityreferstodevelopmentwhichisnotdiminishingfromonegenerationtoanother.Itcomesfromideasofeconomistsratherthanecologists.ThismeansaconstraintongrowthwhichPezzey(1992)pointedoutitasnon-

decliningwelfareovertime.Inthecaseofreductionofwelfare,hecalleditas“survivability”

Basedontheideaofunlimitedsubstitutionbetweenman-madeandnaturalcapitalandPezzey’sdefinitiononsustainabledevelopment,PearceandAtkinson(1997)suggestedf o r m u l a formeasuresustainabledevelopmentasfollows:

Inthisformula,Zisanindexofsustainabledevelopment,DMis

depreciationofman-m a d e capital,DM/Yisarateofdepreciationofman-madecapital,DNisdepreciationofnaturalcapital,DN/YisarateofdepreciationofnaturalcapitalandSisnationalsavings,S/Yissavingr a t e s 13

13 PearceD.,AtkinsonG.,HamiltonK.,DubourgR.,YoungC.andMunasingheM.

(1997),MeasuringS u s t a i n a b l e Development:MacroeconomicsandtheEnvironment,Cheltenham:E dwardElgarPublishingLtd.,UnitedKingdom.

Fromaboveformula,sustainabledevelopmentisweakifZisgreaterthanzeroandv i c e versa.Itmeansthatifsavingratesarehigherdepreciationbothnaturalandman-

calledcriticalnaturalcapitalshouldbeconservedregardlessoftheopportunityc o s t ofsodoing.14

TheyunderestimatedtheroleofpricesandtechnologicalchangesbecauseofmarketimperfectionsbroughtaboutbyapreponderanceoflargecompaniesorState-

owncompanies.S o pricesarenotimperfectsignalofscarcityofresourcesandpricesdonotcapturetheinteresto f futuregenerations.Becausetechnologicalchangeshappenovertime,itwilllowerpricesint h e future.Further,theecologicalviewisalwayspessimisticaboutthecontributionoftechnologicalchangeinthefutureforsolvingenvironmentalproblems

2.3 Objectivesandsignificanceofsustainabledevelopment

In1992,EarthSummitattheUnitedNationsconferenceonEnvironmentandDevelopment(UNCED)washeldinRiodeJanerio,Brazil.Theinternationalcommunitya d o p t e d Agenda21whichwas“alandmarkachievementinintegratingenvironmental,e c o n o m i c andsocialconcernsintoasinglepolicyframework”.InAgenda21,therearemanyrecommendationswithdetailedproposalsformanynationsaroundtheworld.Forexample,

14 DalyHerman,JohnCobb(1999),“Forthecommongood.”BeaconPress,Boston,MA

15 TheUnitedNations,EarthSummitAgenda21,ProgramofActionfromRio,1992.

16 TheUnitedNations,JohannesburgSummit2002,TakingActionsforEarthFuture,2002

Theirstudiesfocusedmainlyonthedepletionofnaturalresourceandcarbondioxidee m i s s i o n s intimeseriesdatafor1970-

1993.Theyfoundthatmanycountrieshavenegativeratesofgenuinesavings.Theproblemhereisthismethodnotaccountforhumancapital

Theyaddededucationalexpenditureasvalueaddedingenuinesavings,andusedthisformulaf o r calculatinggenuinesavingsofmanydevelopingcountries.Theydefinedgenuinesavingsa s follows:

2.4.2IndexofSustainableEconomicWelfareorISEW

Dalyetal

(1999)introducedanindextomeasuretherelationshipbetweenwelfarea n d depletionofenvironment.ItisanIndexofSustainableEconomicWelfareorISEW.Thisi n d e x distinguishesbetweenpollution(water,airandnoise),lossofland(wetland,farmland)a n d long-

termenvironmentbycomparingconventionalnationalincomeaccountandtakingfactorsofenvironmentaldamagesandnaturalresourceintoaccount.Wecanseethisindexinm a n y studies(Lawn,2003;Clarke2005)

2.4.3GenuineProcessIndicatorsorGPI

Thereisanotherindicatorformeasuringsustainabledevelopment,forexample,GenuineProcessIndicatororGPI–

oneversionofISEW.Thisindicatorassessesthee c o n o m i c progressofconventionalmeasurelikeGDP.FromGDP,theygotvalueofGPIbyadjust i ng thevalueofsomefactorssuchastheeffectsofincomedistribution,thedepletionofs o c i a l andnaturalcapitalandcostsofmobilityandpollution(HamiltonC.1999;Robertetal.2 0 0 4 )

efficiency.Thesesourcescannotchangeu n l e s s asocietychangesthewayitproducesandconsumes(Leeetal.2005)

Thepollutioncategoryincludes2indicators:AirQuality(SYS_AIR)andWaterQ u a l i t y(SYS_WQL).Thecategoryforeco-

efficiencyrelatedmeasuresincludes9indicators:B i o d i v e r s i t y (SYS_BIO),Land(SYS_LAN),ReducingAirPollution(STR_AIR),ReducingEcosystemStress(STR_ECO),ReducingWasteandConsumptionPressures(STR_WAS),R e d u c i n g WaterStress(STR_WAT)NaturalresourceManagement(STR_NRM),EnergyE f f i c i e n c y (CAP_EFF),andGreenhouseGasEmissions(GLO_GHG)

2.4.5InclusivewealthindexorIWI

Dasgupta(2007)suggestedthemethodtomeasuresustainabledevelopmentbyusingt h e conceptinclusivewealth.Henotedaneconomywouldenjoysustainabledevelopmenti f andonlyif,relativetoitspopulation,inclusiveinvestmentisnotnegative.Aneconomy’si n c l u s i v e wealthistheshadowvalueofitsproductivebase,andinclusiveinvestmentisthes h a d o w valueofthenetchangeinitsproductivebase.Hecon

14sideredtheprocessofcreatinge c o n o m i c performancebycombiningmanyotherindexessuchasHumanDevelopmentIndex,t o t a l fertilityrate,adultliteracy(percent),femaleliteracy(percent),indexofgovernment

(2001),theystatedthatsustainabledevelopmentshouldmentionthreea c t i v i t i e s asfollows:

Economicactivitiescontributetothegrowthofeconomicwelfareandincomeofanation;t h e y ensuretothecreationofjobs,competitivenessintrade,wealthofanationandincome.Environmentalactivitiesconservetheenvironmentandreduceconsumptionofnaturalresources(bothnonrenewableandrenewableresources)fortheseeconomicpurposes:m a i n t e n a n c e ofbiodiversity,atmosphericstability,reductionCO2emissionandcontrol p o l l u t e d wastewater

Socialactivitiescreatefairnessindistributionofthesewelfareopportunitiesforacommunity;inclu din g

all socialservices such ashealthcareprograms,education,genderequityanda c c o u n t a b i l i t y ofpolitics

Sosustainabledevelopmentachieveswhenanationcombinessuccessfullythreeabovea c t i v i t i e satthesametime.Inotherwords,itisabridgewhichcouldlinkeconomicdeterminants(in

come,welfare),socialdeterminants(educationexpenditure, healthcare,genderequity),environmentalandnaturaldeterminants(emissionofpollutedwastes,conservationofnaturalresources).Ofcourse,thisconcepthassomedefinitelylimitbutuntiln o w , itisasoleconceptw

hichmentionsmostimportantaccountsofanationaldevelopment

Figure 2.1: The three components of sustainable development

Source:http://www my ac p a.o r g /t as k-f o r ce / s u s t a in a bility/prim e r c fm

2.6 Benefitsanddrawbacksofadjustednetsavings

2.6.1Benefits

Sosustainabledevelopmentisaveryvaluableconceptbecauseofitscombination.Itc o n s i d e

r s physical,humanandnaturalcapitals.Untilnow,itisadevelopmentindicatorwhichreflectsproblemsrelatingtonaturalcapital.Italsoreflectsmoreandlargerscopeofdevelopmentofanationthanexistingnationalaccounts.Itremindsthattheconsumptionofcurrentgenerationshouldnotonlyfocusoneconomicdevelopment,butalsothedepletionofn a t u r a l resource,airpollutionandinvestmentforfuturegenerations.Themoreweconsumetoday,themoredepletionthefuturegenerations

Hamiltonetal

(1999)foundthattherewasarelationshipbetweensustainabledevelopmentandincomeofanation.Genuinesavingrateinhigh-

Ofcourse,somebenefitsofsustainabledevelopmentareobviously,andthisindicators h o w s severaldrawbacks.Itscomponentlacksmanyfactorswhichaffectdirectlyorindirectlyt h e developmentofacountry.Asweknow,formulaofadjustednetsavingswhichtheWorldBankintroducedsince1997arenotfullyreflecttheenvironmentalandsocialactivitiesthought h e s e factorssignificantlyimpacttodevelopmentofcountries

Lele(1991)expressedthattheseweaknessesofsustainabledevelopmentinhisresearchastwopoints:first,theincompleteperceptionoftheproblemofpovertyande n v i r o n

m e n t a l degradationandsecond,theconfusionabouttheroleofeconomicgrowthanda b o u t theconceptsofsustainabilityandparticipations.Thatwillleadtoinadequaciesandcontradictionsinpolicymakingwhicharethedemonstratedinthecontextofinternationalt r a d e , agricultureandforestry

J.Ram(2005)showedthatformulaofadjustednetsavingsisimperfectmeasurementb o t h conceptualandempiricalcharacteristicsandsuggestedthataglobalapproachneedtof i n d anothersustainabilityissues,andnaturalcapitalisnotcorporateinnationalaccounting

2.7 EmpiricalModels

2.7.1Modelspecifications

Relatingtodeterminantsoftheadjustednetsavingsindevelopingcountries,PeterHess( 2 0 1 0 ) estimatedthedeterminantsofsustainabledevelopmentortheadjustednetsavingbyu s i n g across-

sectiondataofdevelopingeconomiesfor2001-2006.Heusedsamedeterminantsforestimatingg r o s s nationalsavings.Heincorporatedtwokindsofsavingsi n c l u d i n g grossnationalsavingsandadjustednetsavings.Adjustednetsavingsequalgrosssavingsminusfixedcapitalsoinfluencesonthegrosssavingswillbeimportantforthea d j u s

t e d netsavings.17H ecapturedeconomicdevelopmentbyHumanDevelopmentIndexorHDI.Thesavingabilityofanationdependsonthestructureofthepopulationortheaged e p e n d e n c y ratio.Manydevelopingcountrieshavealessdevelopedfinancialsystemthan

17 PeterHess,Determinantsoftheadjustednetsavingrateindevelopingeconomies,InternationalReviewofA p p l i e d Economics,Vol.2

4,No.5,September2010,591–608

thoseindevelopedcountries.Theeconomicactivityusuallyhappensintheinformalsectorss o theformalizationoftheeconomywillmeasurethefinancialdeepeningortheratioofmoneys u p p l y tonationalincome.

Theadjustednetsavingratesdependonnaturalresourcesbecauseincomefromtheseresourcessuchastheexportoffuels,oresandmetalscontributetothesavingsofanationsot h e depletionofnaturalresourcewilldecreasetheadjustednetsavings

Fromthesearguments,Hessshowedthegeneralequationfortheadjustednetsavingratesa s follows:

Withthegrossnationalsavingrates,theexportincomeofnaturalresourceswillc o n t r i b u t e tothegovernmentrevenuesandpublicsavings.Heusedthesamedeterminantsfore s t i m a t i n g thegrosssavingrateofanationasfollows:

Byusingthereducedformequationforestimatingtheeconomicgrowth,withthea s s u m p t i o

n thatsavingswillflowtoinvestmentandmeasuresavingsorinvestmentratesofa

nationwillbeusedtomeasurephysicalcapitalformation,Hessalsoestimatedtheeconomic

growthbyusingadjustednetsavingasanindicatorofnetcapitalformation.Ofcourse,a d j u s t e d netsavingdoesincorporatehumancapitalformationandnaturalresourcedepletionincompletely.HeusedHDI,APL,realgrowthrateofexportofgoodsandservices,FDIors h a r e ofFDIinnationaloutputasdeterminantsforestimatingtheeconomicgrowthwiththee q u a t i o n below:

TheresultshowsthatthesavingrateisanotstatisticallysignificantontheaverageannualchangeingrowthrateinrealGDPpercapita.APLandGXarestatisticallysignificantwhileHD I andFDYarenotexplanatoryvariables

Dietzetal

(2007)investigatedwhethertheinteractionbetweenresourceabundancea n d indicatorofinstitutionalquality.Threeindicatorsofinstitutionalqualityarelackofcorruption,bureaucraticandruleoflaw18.FromtheresultofAtkinsonandHamilton(2003),t h e positiverelationshipbetweenresourceabundanceandgeneralinstitutionalqualityongrossinvestmentandsavings,theytestwhetherthenegativeeffectofresourceabundanceongenuinesavingsisexplainedbypolicyfailureandspecifyamodeltoexplaingenuinesavingsb a s e d ontheinteractionbetweennaturalresourceendowmentandinstitutionalquality.19

Theirmodeluseddataof115countrieswithin18yearsinreducedform.Inmanyresearches,thesefactors suchaspercapitaincome,economicgrowth,age

dependencyandu r b a n i z a t i o n appeartohaverobustandsignificanteffectongrosssaving.Theyestimatedtwom o d e l s ofgrosssavingsandadjustednetsavingrateswithotherdeterminantsasfollows:GrossSRi,t

=α+β1lnYi,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t+β5Insti,t+β6Rsi,t+β7Insti,txRsi , t +Tt+εi,t

(2-6)GSRi , t=α+β1lnYi,t+β2Growthi,t-1+β3Agei,t+β4Urbani,t+dβ5Insti,t+β6Rsi,t+β7Insti,txRs

19 AtkinsonG.,HamiltonK.(2003),“Saving,GrowthandtheResourceCurseHypothesis.”WorldDevelopment31:1793–1807.

age,urbanization,investmentandresourcerent.Theyfoundthatrichresourcecountrieshavel o w e r genuinesavingsthanpoorresourcecountriesandinstitutionfailurewilldepressgenuinesavings.Thenegativeeffectofresourceabundanceongenuinesavingswilldecreasewhencorruptionreduces.

2.7.2Suggestedmodel

FrommainfindingsofHess(2010)andGraceetal

(2004),modelsforfindingtheseanswersabouttherelationshipbetweeneconomicgrowthwithadjustednetsavingswithsomedeterminantsasGDPGRorGDPPC,HDI,MSAGE,UBGRandCPIareasfollows:

n d oresandmetalsasfollows:

Model3:HigherrateofagriculturalexportwillbelessensustainabledevelopmentANSi=γ0+γ1AGRIi+γ2UBGRi+γ3MSi+γ4XRi+γ5AGEi+γ6CPIi+ψi (2-10)

Model4:HigherrateoforesandmetalsexportwillbelessensustainabledevelopmentA N Si=δ

0+δ1ONMi+δ2UBGRi+δ3MSi+δ4XRi+δ5AGEi+δ6CPIi+φi (2-11)FromthefindingofHess(2010),Hamiltonetal

(1999)aboutdeterminantswhichcanaffectt o adjustednetsavingsindevelopingcountries,Isetuponemoremodelasmodel1withdataof developingcountriesonly

Model5:Fastergrowthofeconomicswillleadtosustainabledevelopmentindevelopingc o u n t r i e sANSi=α0+α1GDPGRi+α2HDIi+α3MSi+α4XRi+α5AGEi+α6UBGRi+α7CPIi+εi( 2 - 1 2 )

Whereidenotesforcountryi,εisresidualDeterminantsthatwillbe

usedforestimatingmodelsinclude:

Adjustednetsaving(ANS)isanindicatorwhichmeasurethetruesavingratesaftertakingi n t o accountinvestmentinhumancapital(educationexpenditure),depletionofnaturalresources(energydepletion,mineraldepletion,forestdepletion)anddamagescausedbyp o l l u t i o n (carbondioxidedamage,andparticulateemissionsdamage)

GDPgrowth(GDPGR):AnnualpercentagegrowthrateofGDPatmarketpricesbasedonco n st a n t localcurrency.Aggregatesarebasedonconstant2000U.S.dollars.GDPisthesumo f grossvalueaddedbyallresidentproducersintheeconomyplusanyproducttaxesandm i n u s anysubsidiesnotincludedinthevalueoftheproducts.Itiscalculatedwithoutmakingd e d u c t i o n s fordepreciationoffabricatedassetsorfordepletionanddegradationofnaturalresources

GDPpercapita(GDPPC)isgrossdomesticproductdividedbymidyearpopulation.GDPist h e sumofgrossvalueaddedbyallresidentproducersintheeconomyplusanyproducttaxesa n d minusanysubsidiesnotincludedinthevalueoftheproducts.Itiscalculatedwithoutm a k i n g deductionsfordepreciationoffabricatedassetsorfordepletionanddegradationofn a t u r a l resources

Human

DevelopmentIndexfor2010(HDI)isacompositestatisticoflifeexpectancy,education,andincomeindices torankcountriesintofourtiersofhuman development ,scorefrom0-

1,higherismorehumandevelopment.Theauthorexpectthatthisfactorwillcausep o s i t i v e impactonadjustednetsavingsbecausethisindicatormeasurethedevelopmentofn a t i o n , highHDImeanstohighincome,higheducation.Thesefactorsareimportantforcreatinghighperceptioninmannerofconsumption,production,highawarenessinprotectiono f naturalresourcesandenvironment

AverageagedependencyratiosorAGEistheratioofnonworkingpopulation-peopleunder1 5 totheworkingpopulation-people15-

orover65-64.Thisfactorcancausenegativeimpacto n adjustednetsavingsbecausehighrateofitmeansthehighrateofnon-

workingpeopleofeconomy,thiswillleadtolowproductivityforanation,highburdeninsocietywhenGovernmentneedstoconsumemoreforsocialwelfare,forhealthcareprogram,foreducationw h

y thedirectlaborforcecontributeslowforeconomy,especiallyindevelopingcountries

CorruptionperceptionindexorCPIisanaggregateindicatorthatrankscountriesintermso f degreetowhichcorruptionisperceivedtoexistamongpublicofficialsandpoliticians.Itisa compositeindexdrawingoncorruption-relateddatabyavarietyofindependentandreputableinstitutions.Ithasscorefrom0-10,higherscoremeansmoreperceptionaboutcorruption.Consideringtheimpactinmanydevelopingcountriesthencomparingwithdevelopedcountries,developedcountriesusuallyhavehigherindexthandevelopingcountries.Sotheauthorexpectthatthisindexwillcausepositiveimpactonadjustednetsavingsorsustainabledevelopment.

Averageannualgrowthrateinmoneyandquasimoney(MS)comprisethesumofc u r r e

n c y outsidebanks,demanddepositsotherthanthoseofthecentralgovernment,andthet i m e , savings,andforeigncurrencydepositsofresidentsectorsotherthanthecentralgovernment.Thechangeinthemoneysupplyismeasuredasthedifferenceinend-of-

yeart o t a l s relativetothelevelofM2intheprecedingyear.Indevelopedcountries,theyhavem o

r e developedfinancialsystemwhichserviceformultiplepurposesintransfer

Naturalresourcesexportissumofexportoffuels,oresandmetals,measureasashareofmerchandiseexports.Thisactivityusuallyhappenindevelopingcountries,itrequiresthee x p l o i t a t i o n ofnaturalresourcesinrawstatethenexporttodevelopedcountrieswheretheyh a v e advancedtechnologyinmanufacture.Itwillleadtothedepletionandshortageofmaterialsfordomesticproductionsoitwilldecreasethesavingsforfuturegenerations

Agriculturalexportissumofexportofagriculturalrawmaterials,measureasashareofmerchandiseexports.Thisfactorcancausesameimpactasexportofnaturalresources.Inspecificcases,thisactivityalwaysrequiremoreconsumptionofpesticidesorchemicalsforhighproductivitythatwillcausethepollutionofagriculturallandandsourcesofwater

ONMissumofexportoforesandmetals,measureasashareofmerchandiseexports.Thise x p o r t isonepartofnaturalresources,itremovestheimpactoffuelsonadjustednetsavingssotheauthorexpectthatthisfactoralsocausenegativeimpactonadjustednetsaving

Urbanpopulationgrowth(UBGR)isthegrowthofurbanpopulation.Thisfactorincreasecansupplymorelaborforcesforeconomy,contributetoeconomicgrowthandm o r e savingsfornationsothisfactorisexpectedtocausepositiveimpactonsustainable

development

signDependentvariable

Where:

64,theshareofnaturalresourcesinexportandameasureoffinancialdevelopmentarei m p o r t a n t influences.Buteconomicgrowthisnottobesignificantexplanatoryvariable.Witht h e grossnationalsaving,thechangeinsharepopulationaged15to64alongwitheconomicgrowthrateare significantdeterminants

Byestimatingthesimultaneousmodelforeconomicgrowthandadjustednetsaving,h e foundthatresultisunjustified.Itmeansthatbothsavings-adjustednetsavingandgrosss a v i n g –

showsstatisticallyinsignificantonaveragegrowthrateinrealGDPpercapita

2.8.2YacoubaGnegnè(2009)

Yacouba(2009)testedwhetheradjustednetsavingsexplainsthechangeinthewelfareo v e r 2000.Paneldataincluded36developinganddevelopedcountries.Withp r o x i e s ofawelfareareHumanDevelopmentIndex(HDI)andInfantMortalityRate(IMR),h e usedGrossNationalIncome(GNI)asacontrolvariableandNNSisaregressor.Byusingt h e fixedeffectmodelforestimationthisrelationship,hefoundthatadjustednetsavingsandwelfarearepositivesignificantlybutthemagnitudeisweak

theperiod1971-2.8.3Dietzetal.,(2007)

Inthisstudy,theyusedpaneldataof115countrieswithin18yearsfromWorldBanksource forstudyingtherelationshipbetweengenuinesaving,corruptionandtheresource

curse.Theyusedreduced-form model,fixedeffectestimation,GMM estimationand

Arrellano-Bonddynamicmodelwithvariablesgenuinesavingrate,grosssaving,growth,G D P , age,urbanization,investmentandresourcerent.Theysetuptwohypothesesforr e l a t i o n s h i p s asfollows:

GrossSRi,t=α+β1lnYi,t+β2Growth

i,t-1+β3Agei,t+β4Urbani,t+β5Insti,t+β6Rsi,t+β7Insti,txRsi , t +Tt+εi,t (2-16)GSRi,t=α+β1lnYi,t+β2Growthi,t-

1+β3Agei,t+β4Urbani,t+β5Insti,t+β6Rsi,t+β7Insti,txRsi , t +Tt+εi,t (2-17)

Theyfoundthatrichresourcecountrieshavelowergenuinesavingratethanpoorresourcecountriesandinstitutionfailurewilldepressgenuinesaving.Thenegativeeffectofresourceabundanceongenuinesavingwilldecreasewhencorruptionreduces

2.8.4Alametal.,2007

Theirstudymeasuredtheimpactofeconomicgrowthonenvironmentbyusingtimeseriesdatainaperiodof1971-

2005inPakistan.ThesefactorsinthisstudyareGDPpercapita,carbondioxideemission,energyconsumption,populationandurbanization.Intheirmodel,t h e y useVARmodelandADFtest.Theyconcludedthatthereisapositiverelationshipbetweeneconomicgrowthandcarbondioxideemissioninthelongterm.Inthiscase,e c o n o m i c developmentisenergydrivensoitcontributesconsiderablytocarbondioxidee m i s s i o n

2.8.5Ram,2005

Inthispaper,theauthorexaminestheconceptualandempiricalcharacteristicswithp o l i c y implicationsofthemeasureofgenuinesaving.ThisstudybasedontheformulaofgenuinesavingsoftheWorldBankasfollows:

Hisanalysisshowedthattheimperfectofthemeasurebothconceptualandempiricalcharacteristics.Healsofoundthattheerrorofpolicyimplicationsbasedonthismeasurement.