A Critical Review of the Literature on Structural

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THE WORLD BANK ENVIRONMENT DEPARTMENT,A Critical Review of the. Literature on,Structural Adjustment,and the Environment. Anna Gueorguieva and Katharine Bolt,April 2003, Papers in this series are not formal publications of the World Bank They are circulated to encourage thought and discussion The use. and citation of this paper should take this into account The views expressed are those of the authors and should not be attributed to. the World Bank Copies are available from the Environment Department The World Bank Room MC 5 126. The International Bank for Reconstruction,and Development THE WORLD BANK. 1818 H Street N W,Washington D C 20433 U S A,Manufactured in the United States of America.
First printing April 2003,ABSTRACT v,ACKNOWLEDGMENTS vii. ABBREVIATIONS ix,Introduction 1,General Approaches 3. 2 1 Approaches for Evaluating Effects of SAPs on the Environment 3. 2 1 1 Strategic Environmental Assessment SEA 3,2 1 2 Village Economy Wide Model 6. 2 1 3 Social Dimension 6,2 1 4 Second Best Theory 6. 2 1 5 Four Dimensional Analysis 8,2 1 6 Accounting for Chaotic Effects 8.
2 1 7 Computable General Equilibrium CGE Models 9,Sectoral Analyses 11. 3 1 Agriculture 11,3 1 1 Substitution Effects 11,3 1 2 Income Effects 12. 3 1 3 Land Prices and Tenure 12,3 1 4 Agricultural Credit 13. 3 1 5 Full Effects of Structural Adjustment 14,3 2 Forestry 15. 3 3 Water Sector 17,3 4 Wildlife based Sector 18,3 5 Energy 18.
3 6 Urban Environment 20,3 7 Public Sector Reform 21. 3 8 Governance 22,Environmental Economics Series iii. Indicators of Environment and Sustainable Development Theories and Practical Experience. Effects Through Indebtedness and Economic Liberalization 25. 4 1 Debt and the Environment 25,4 2 Liberalization and the Environment 26. 4 2 1 Pollution Haven Hypothesis 26, 4 2 2 Estimation of the Effects of Changed Scale and Structure of the Economic Activity Using. CGE Models 27,Conclusion 29, 5 1 Difficulties in studying the environmental effects of SA 29.
5 2 Lessons on How to Reduce Negative Environmental Impacts 30. Appendix A, Theoretical Linkages Between Structural Adjustment Instruments and Effects. on the Environment 35,Appendix B, Sectoral Analysis of the Impact of Liberalization on Agriculture 41. Appendix C,Country Case Studies 43,C 1 World Bank Studies 43. C 2 WRI and WWF Studies 44,REFERENCES CITED 51,ADDITIONAL REFERENCES 56. 1 Structural Adjustment Defined 2,2 The Energy Sector in Transitional Economies 20.
3 Good Practice of Institutional Development in World Bank Loans 23. 1 Excess energy consumption 20, 1 Theoretical channels through which SAPs influence environmental conditions 4. iv Environment Department Papers, This paper analyzes the available literature are strongly influenced by what is examined. about the effects of structural adjustment the sectoral level and the stage of the SA. programs SAPs on the environment and the process The infrequency of high caliber. convincing evidence for their success or studies is due to data scarcity and statistical. failure The studies covered refer to the SAPs limitations. by the World Bank as well as to general There is little reason to doubt however that. government programs that have similar policy over the longer term the sorts of changes in. implications SAPs are designed to reform incentive structures and relative price changes. economies to become more liberalized and brought about by SA lending will have an. export oriented while reducing the role of impact on the environment Economies. governments that have become inefficient undergoing SA will experience both growth. bureaucracies Because of the implications of assuming the success of SAPs and structural. policies such as debt accumulation and trade a shifts which will affect the extraction of. concise literature review on debt and trade natural resources and the level of pollution. liberalization is also included emissions The evidence presented in the. Despite the controversy surrounding structural studies reviewed highlights that the net effect. adjustment and the environment the debate of SAPs on the environment has been varied. has been largely based on anecdotal evidence sometimes positive and at other times. and country case studies Most of the studies negative The papers surveyed emphasize the. reviewed are not quantitative and have not difficulty in generalizing about the direction. applied rigorous statistical methods The and magnitude of these environmental. conclusions of studies on the effects of impacts as the linkages are complex and case. structural adjustment SA on the environment specific. Environmental Economics Series v,Acknowledgments, The authors would like to thank Kirk Hamilton Cynthia Allen who helped edit the report All. for his support throughout this project and remaining errors are ours. Ksenya Lvovsky Muthukumara Mani Tim,Anna Gueorguieva may be reached at. Taylor Ken Greene and Olivia Cowley for University of California Berkeley E mail. their useful comments We are indebted to anna are berkeley edu. Environmental Economics Series vii,Abbreviations,CENDES Simulation Model of the Venezuelan Economy.
CGE computable general equilibrium,DSM demand side management. GDP gross domestic product,GHG greenhouse gases,IMF International Monetary Fund. LRMC long run marginal effect,SA structural adjustment. SAL structural adjustment loan,SAP structural adjustment program. SEA strategic environmental assessment,SECAL sectoral adjustment loan.
WRI World Resources Institute,WWF World Wide Fund for Nature. Environmental Economics Series ix,1 Introduction, The inception of structural adjustment criticism from some parties regarding its social. programs SAPs followed the oil crisis of the and environmental impacts The focus of this. 1970s the deepest global recession since the paper is the impact that SAPs have had on the. Great Depression and the developing country environment SA critics argue that SAPs. debt crisis of the 1980s With many of the promote increased resource use thus. world s economies floundering the first undermining sustainability as a country has. structural adjustment loan SAL was little capacity to protect the commons which. implemented in February 1980 SAPs aim to results in excessive exploitation The. restore economic growth through stabilization proponents of SA have stressed the win win. in the short run and adjustment in the medium potential of SAPs because by removing. term They are utilized by several of the distortions and enhancing productivity. international financial institutions most efficiency SA should reduce resource wastage. notably the World Bank and IMF but also some This should at least in part compensate for any. of the regional development Banks including movement into the competitive advantage. the Asian Development Bank and African sectors that are resource and or labor. Development Bank intensive in low income countries If SA. increases prosperity that will promote greater, While SALs are linked to programs of interest in environmental protection and. economic and policy reforms sectoral create resources to finance the protection. adjustment loans SECALs are linked to, sectoral reform programs The main Both arguments are reasonable on a priori. instruments of adjustment are changes in grounds so it is possible that SA will have. taxes tariffs quotas subsidies price controls negative and positive impacts Determining. public expenditure and trade reforms the net impact of SA is an empirical issue The. Recently governance private sector net effects of SAPs on the environment have. development and deregulation reforms have been varied sometimes positive and at other. been important elements of SA These policies times negative It is difficult to generalize. are designed to promote a more open about the environmental impacts resulting. competitive economy with fewer distortions from SAPs because the linkages are often. thus easing the response of the private sector to complex and tend to be case specific Pandey. less distorted or undistorted market signals and Wheeler 2001 Dixon Simon and. Narman 1995 and Panayotou and Hupe, The economic success of structural adjustment 1996 suggest that the conclusions of their.
SA has been patchy and it has faced heavy studies are highly dependent on the geographic. Environmental Economics Series 1, A Critical Review of the Literature on Structural Adjustment and the Environment. Structural Adjustment Defined, Structural adjustment loans SALs provide quick disbursing assistance to countries with external financing. needs to support structural reforms in the economy as a whole Sectoral adjustment loans SECALs support. reforms that are limited to a specific sector Adjustment operations generally aim to. Promote competitive market structures, Correct distortions in incentive regimes taxation and trade reform. Establish appropriate monitoring and safeguards financial sector reform. Create an environment conducive to private sector investment judicial reform adoption of a modern in. vestment code, Encourage private sector activity privatization and public private partnerships. Promote good governance civil service reform, Mitigate short term adverse effects of adjustment establishment of social protection funds.
or sectoral coverage the motivating This review starts by looking at recent more. assumptions and the depth of analysis In quantitative approaches to analyzing the effects. order to conclusively determine the net impact of SAPs Evidence of the environmental. Pandey and Wheeler show that an impacts of sectoral measures of the programs. encompassing in depth study is required debt accumulation and trade liberalization is. Given data scarcity and statistical limitations then examined The review concludes with a. quantitative high caliber studies are presentation of country case studies and policy. infrequent analysis of World Bank SAPs,2 Environment Department Papers. 2 General Approaches, 2 1 Approaches for Evaluating Effects of recent approaches that have been developed to. SAPs on the Environment estimate the effects of SA on the environment. The scope of the reviewed studies is focused on,Theory identifies several channels through. research questions that directly address SAPs,which SAPs can potentially affect the. and excludes studies of particular reforms that,environment First changes in input and output.
might be part of SA such as devaluation,prices can affect resource use Second SAP. foreign direct investment and privatization In,reforms influence the structure and scale of. section III case studies are presented by sector,economic activity This in turn can increase or. decrease the level of environmentally harmful 2 1 1 Strategic Environmental Assessment. economic activities It may also lead to increased SEA. specialization in certain activities Third income, effects can affect the use of natural resources The SEA is a systematic process for evaluating. either positively or negatively Where segments the environmental consequences of proposed. of society are adversely affected by the SAP policies plans or program initiatives In. this may lead to an increased reliance on and general it has been applied in the sectors of. degradation of natural resources Lastly SAPs energy transport and waste management but. rarely in the context of policy and planning,can affect environmental management by.
evaluation Kessler and Van Dorp 1998,altering public finance and by impacting. develop a methodology to assess the impact of,institutions and governance All these effects. SAPs on natural resources and their basic,are dependent on the initial conditions and the. values for human society It focuses on soil,environmental and social characteristics. forest and water resources The analytical,within the country Table 1 summarizes the.
framework emphasizes the,above theoretical linkages. Environmental quality of soil water and,forests and the requirements for their. Each SAP is a combination of several reforms sustainable use. that combine through diverse channels to Environmental regulation or stabilization. affect the natural environment The individual functions of these resources and the. effect and relative significance of each reform consequences of these impacts on human. environment channel need to be evaluated and society instead of solely short term. compared with the impacts from other productive assets. channels Therefore the net effect is ambiguous Long run consequences and thresholds of. and needs to be addressed empirically In the environmental degradation for different. remainder of this section we present some human systems using these resources. A Critical Review of the Literature on Structural Adjustment and the Environment or sectoral coverage the motivating assumptions and the depth of analysis In order to conclusively determine the net impact Pandey and Wheeler show that an encompassing in depth study is required Given data scarcity and statistical limitations

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