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Biodiversity, Demography and Economy: An Exploration of Linkages

Amitabha Sinha
Reader
Department of Analytical Applied Economics
Tripura University
Abstract: A text book definition of ‘biodiversity’ is “variation of life at all
levels of biological
organisation”. This paper investigates the inter-linkages between biodiversity,
population
density and economic prosperity in the context of 112 countries of the world A p
roduction
function approach is adopted. However, the analysis allows for technical ineffic
iency .World
Bank classification is adopted in classification of the countries as high, mediu
m and low
income. 112 countries are taken up for study on the basis of availability of rel
evant data. The
results of the analysis do not support the hypothesis that high income countries
are
technically more efficient in maintaining biodiversity, even when allowance is m
ade for
differences in population density.
Keywords: Biodiversity, Technical Efficiency, Deforestation.
I. Introduction
Wikipedia observes that the current text book definition of ‘biodiversity’ is “v
ariation of life
at all levels of biological organisation”, that is, genes, species and habitatio
ns existing on
land, water and air. According to the HIPPO hypothesis of Edward O. Wilson (1988
), the
threat factors for biodiversity are: Habitat destruction (H), Invasive species (
I), Pollution (P),
Human over population (P) and Over harvesting (O). One of the aspects of habitat
destruction
.Availability of flora and fauna, on the other hand, can be related to availabil
ity of forest area
This can measured in terms of total geographical area of the country as percenta
ge of forest
area in total geographical area, It can be also looked upon from the context of
total population
.Dividing the forest area by total population, per capita forest area can be cal
culated, Per
capita GDP is a measure of economic productivity of a country. In economics , pr
oduction is
value addition or prevention of value loss .Here , not only exchange value but a
lso use value
and non –use value have to be considered . Similarly, per capita forest is a mea
sure of
biodiversity productivity of a country (Bhattacharya, R, N. (2001). Taking this
approach, one
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can employ production function and efficiency frontier method naturally .This is
elaborated
in the next section .
II. The Model
The model proposed in the present study has two layers. Habitat is captured by t
he proxy
variable per capita forests of a country. Economic development is measured by pe
r capita
GDP. In the traditional analysis of the relationship between biodiversity and ec
onomic
development, it is implicitly assumed that each country is operates at the margi
n of
technologically determined production possibility frontier. This assumption is r
eplaced by the
possibility that the country may operate inside the production possibility front
ier. Michael
Farrell (1957) introduced a methodology to measure economic, technical (TE), and
input and
output allocative efficiency (AE). According to Farrell, TE is associated with t
he ability to
produce on the frontier iso-quant, while AE refers to the ability to produce at
a given level of
output using the cost-minimizing input ratios. Alternatively, technical ineffici
ency is related
to deviations from the frontier iso-quant, and allocative inefficiency refers to
deviations from
the minimum cost input ratios. Thus, EE is defined as the capacity to produce a
predetermined quantity of output at minimum cost for a given level of technology
(Farrell
and Michael, 1957; Dewatt and Billie R. 1979).
Therefore, the production function is not written as follows:
Yi = β0 + β1Xi + vi … … … (1)
Here i represents the country and vi is white noise. We write the production fun
ction as:
Yi = β0 + β1Xi + vi – ui … … … (2)
Here ui represents the gap etween the actual production possi ility frontier an
d the efficient
production possi ility frontier. O viously, ui is a negative term. Only when ui
= 0, the country
operates at efficient level. We assume that vi is a stochastic varia le which ha
s a half normal
distri ution ecause ui cannot have positive values. The maximum value it can ha
ve is zero.
O viously, ui is a measure of technical efficiency. In the first layer of analys
is, we estimate
the technical efficiency of rich and poor countries. Then we introduce the demog
raphic factor
in the second layer. Population density represents the demographic dimension of
population.
Here two types of questions are addressed. Firstly, what is the impact of popula
tion density
on the technical efficiency of the countries? Secondly, is there any difference
in this impact
etween the rich and the poor countries? For testing this hypothesis, we constru
ct the
following econometric model.
Yi = β0 + β1X i + β2d1 + β3d2+ vi … … … (3)
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Here Y represents technical efficiency, X represents population density, d1 is a
dummy
varia le which takes the value of 0 for poor countries and 1 for high income cou
ntries.
Similarly , d2 is 1 for middle income countries . Here , vi is the white noise.
The
interpretation of the coefficients in the case of dummy varia le model can e r
iefly
discussed here. Let us take the case when d = 0. Then, we have
Yi = β0 + β1X i + vi … … … (4)
However, if d2 = 1 and d1 = 0 ,which is the middle income country case ,we shall
have
Yi = (β0 + β3) + β1X i + vi … … … (5)
Therefore, β3 measures the difference in technical efficiency of middle income a
nd poor
countries caused y population density. We expect that β3 is positive and statis
tically
significant. Similarly, for β2. We expect that β1 is negative and statistically
significant.
III. Data
We o tained data from http://www.monga ay.com/deforestation_pcover.htm.
These data, ased on FAO for forests, have een criticised for their uneven
quality across nations and inconsistencies in dentitions. But despite this .they
remain
important source of cross-national information on forests and the total amount o
f
forest cover. Per-capita GDP is in US $ for the year 1997. Forest data are for t
he year
2000. Population densities data refer to 1999.Based on availa ility of data, 112
countries are
selected for analysis. The countries have average per capita forests less than o
r equal to 2
hectares. Major three categories of Wold Bank, namely, High, Middle and Poor inc
ome
classification is adopted (World Bank, 2003) in classifying the countries .
IV. Results It is argued in this paper that the capacity of the high income coun
tries to protect
their forest resources can e analysed assuming that these economies are technic
ally at the
efficiency frontier. If this possi ility is not taken for granted, then one may
try to relate per
capita GDP in terms of TE to maintain average per capita forest area of a countr
y. This can
e done using Stochastic Frontier Model. The results are summarised in Ta le 1.
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Ta le 1: Efficiency Analysis
Stochastic Frontier Normal/half-normal Model
Log likelihood = -85.277955
Num er of o servations = 112
Wald chi2(1) = 0.17
Pro >chi2 = 0.6811
Per Capita
Forests(Dependent)
Coefficient
Std. Error
z
P>z
[95% Conf. Interval]
Per Capita GDP -0.0000021 0.0000052 -0.41 0.681 -0.000012 0.0000080
Constant 0.5446 0.2482 2.19 0.028 0.0582 1.0310
/lnsig2v -1.3151 0.1337 -9.84 0 -1.5771 -1.0531
/lnsig2u -10.5422 117.9498 -0.09 0.929 -241.72 220.6352
sigma_v 0.5181 0.0346 - - 0.4545 0.5907
sigma_u 0.0051 0.3030 - - 3.25E-53 8.13E+47
sigma2 0.2685 0.0359 - - 0.1981 0.3389
lam da 0.0099 0.3061 - - -0.5899 0.6098
Data Source: http:/monga ay.com/deforestation_pcover.htm.
The sign of the income coefficient is negative. This implies that per capita for
est is
lower in those countries which have higher per capita GDP on the average. Howeve
r, the
statistical significance of the estimate is very low as shown y the z value whi
ch is -0.41.
For the estimated log likelihood value we o tain average per capita forest of 1.
09 hectare.
Among log likelihood ratio test, the lagrangian multiplier test and the Wald tes
t, the Wald
statistic is considered to e more applica le. The p value for the Wald statisti
c is 0.68.
This means that the goodness of fit of the model is not very high. These limitat
ions of the
data have to e kept in mind while studying Ta le 2.
Ten countries (including highest and lowest ranking in terms of per capita incom
e,
population density and technical efficiency) as major countries among 112 select
ed
countries are reported in Ta le 2. These 10 countries are classified in terms of
World
Bank classification y income as high, low and low (medium), per capita income r
anking,
population density ranking and technical efficiency ranking. If the countries ar
e ranked
according to technical efficiency and classified as: high technical efficiency (
rank 1 to 37),
medium technical efficiency (rank 38 to 74) and lo technical efficiency (rank 75
to 112), ut
considers World Bank categories of high, medium and low income countries, then o
ne finds
that only 4 countries out of the 37 countries of high technical efficiency elon
g to high
income group. However, if the countries are ranked according to the per capita G
DP and one
considers the countries with rank 1 to 37 as high income countries then one find
s that 10
countries out of the high income countries elong to high technical efficiency g
roup. In other
words, the general impression that high income countries are always etter in ma
naging there
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environment in iodiversity is not supported y the present set of data. Ta le 2
focuses on 10
countries which includes apart from India, China and U.S.A. the countries which
have the
highest and lowest rank in per capita GDP, population density and technical effi
ciency. It
may e noted that the country with the highest per capita income has rank 1 and
the country
with the lowest per capita income has rank 112. Similarly, the country with the
highest
technical efficiency has rank 1 and the lowest has the rank 112. In the case of
population
density, the country with the highest population density has the rank 1 and the
lowest 112.
India and China are low in per capita income rank and very low in technical effi
ciency rank.
U.S.A. fares etter in technical efficiency with a rank of 27 as shown in Ta le
2.
Ta le 2: A Few Major Countries’ Location Pattern
Name of the
Country
World Bank
Classification
Per Capita
Income Rank
Population
Density Rank
Technical
Efficiency Rank
1. Switzerland High 1 15 64
2. USA High 7 92 27
3. India Low 87 3 106
4. China Low 76 22 102
5. Japan High 2 2 65
6. Germany High 5 13 84
7. Ethiopia Low 112 64 112
8. New Zealand High 12 102 1
9. Repu lic of
Korea
High 16 1 86
10. Mauritania Low 84 112 105
Data Source : http://www.monga ay.com/deforestation_pcover.htm
Note: Rank according to descending order.
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At the second layer of analysis, we ask two questions: (a) how does population
density impact on technical efficiency of the countries and ( ) is there any dif
ference etween
the impacts among the rich and the poor countries. Ta le 3 shows that the coeffi
cient of
population density is negative and statistically significant. However, the coeff
icient of the
dummy varia le is positive in the case of high income and negative in the case o
f medium
income countries. However, the coefficients are not statistically significant. T
he positive sign
of dummy of high income countries implies that given population density technica
l efficiency
is higher in high income countries compared to the low income countries which ca
n e
thought of as the control group. But the dummy has a negative sign for medium in
come
countries implying a poorer performance in efficiency compared to the poor incom
e
countries. However, these results are not statistically significant. This means
that no
significant difference is found in technical efficiency given population density
among high,
medium and poor countries.
Ta le 3: Regression Results
Source SS df MS Num er of o servations = 112
F(3, 108) = 13.26
Pro > F = 0
R-squared = 0.2691
Adj R-squared = 0.2488
Root MSE = 0.000045
Model 0.000000080 3 0.000000027
Residual 0.00000022 108 0.0000000020
Total
0.00000030
111
0.0000000027
Efficiency Coefficient Standard Error t P>t [95% conf. Interval]
Population Density -0.00000032 0.000000053 -6.03 0 -0.00000042 -0.00000021
Dummy High 0.0000145 0.000014 1.06 0.292 -0.0000127 0.0000417
Dummy Medium -0.0000086 0.0000094 -0.92 0.361 -0.0000273 0.00001
_Constant 0.9966236 0.0000080 - 0 0.9966077 0.9966394
[Source: http://www.monga ay.com/deforestation_pcover.htm
V. Discussion
The results o tained in the present study do not support the proposition that an
economically
advanced country manages its environment and iodiversity more efficiently. In s
pite of the
limitations of data this major finding seems to e a reasona le finding, the vas
t literature
which has emerged in environmental economy (Bhattacharya, 2001) show that enviro
nmental
goods exhi it the properties of non-rivalry and non-excluda ility. In the case o
f such goods
there is market failure. This means that market driven solutions are not pareto-
efficient.
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Pareto efficiency is the sum total of technical efficiency and allocative effici
ency. The
relationship etween pu lic good, property rights and technical efficiency is no
t analysed in
the literature as thoroughly as the relationship etween pareto- efficiency and
pu lic good.
But the essential economic logic may not e so difficult to understand. Due to u
nclear
ownership pattern of natural resources like forest their economic value which ma
y e
considered to e the sum total of used value and non-used value may not e prope
rly
recognised y the producers. This may lead to over exploitation of natural resou
rces – often
called ‘Tragedy of the Commons’ (Hanley, Nick, Jason F. Shogren and Ben White, 1
997).
Therefore, technical efficiency may not e exhi ited y countries which are main
ly market
driven economies.
VI. Conclusions
Economic development has led to industrialisation, greater use of fossil fuel, p
opulation
explosion and a high degree of regional inequality. A deeper analysis will show
that it is not
economic development as such ut market led economic development and market fail
ures
which are at the root of the environmental crisis of the present world. Interven
tions y
government and national and international level have thus ecome important. The
United
Nations Environmental Agency has een organising conferences to create a common
platform of nations from 1972 onwards. The Copenhagen Summit held in the period
(7 to 18)
Decem er, 2009 on climate change fail to ring a out a comprehensive glo al comm
itment
indicating the fact that national policies of advanced countries often serve the
interest of ig
usiness. The profit interests o struct the corporate decision making process fr
om adopting
initiatives which are perceived to have negative implications for profita ility.
 The long term
point of view may sometimes e sacrificed at the altar of immediate gains. The c
ivil society
throughout the world must adopt a more clear stance to countervail the short-run
perspective
for a more sustaina le human development process not only at regional and nation
al level ut
also at glo al level. This conclusion emanates from the premise that the macro a
lways
dominates the micro in the socio-economic spheres.
References
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Oxford University Press.
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http://www.monga ay.com/deforestation_pcover.htm.
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