Environment vs Economy

National and international economic policy has usually ignored the environment. In areas where the environment is beginning to impinge on policy, as in the General Agree- ment on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), it remains a tangential concern, and the presumption is often made that economic - growth and economic liberalization (including the liberalization of intemational trade) are, in some sense, good for the environment. This notion has meant that economy-wide policy reforms designed to promote growth and liberalization have been encouraged with little regard to their environmental consequences, presumably on the assumption that these consequences would either take care of themselves or could be dealt with separately. In this article we discuss the relation between economic growth and environ- mental quality, and the link between economic activity and the carrying capacity and resilience of the environment
Economic Growth, Institutions, and the Environment The general proposition that economic growth is good for the environment has been justified by the claim that there exists an empirical relation between per capita income and some measures of environmental quality. It has been observed that asincome goes up there is increasing environ- mental degradation up to a point, after which environmental quality improves. (The relation has an "inverted-U" shape.) One explanation of this finding is that people in poor countries cannot afford to emphasize amenities over material well-being. Consequently, in the earlier stages of economic development, increased pollution is regarded as an acceptable side effect of economic growth. However, when a country has attained a sufficiently high standard of living, people give greater attention to environmental amenities. This leads to environ- mental legislation, new institutions for the protection of the environment, and so forth. The above argument does not, however, pertain to