The environmental impact of globalization on Latin America: a prospective approach

Current changes in Latin America include the abandonment of the economic pattern of import substitution, a growing opening of the national economies, a continental wave of political democratization, an apparent economic recovery from the "lost decade" (the 1980s), a growing social polarization, a worsening of environmental problems, the growing influence of the market, and the most intense urbanization process on the planet. The aim of this paper is not to discuss the advantages or disadvantages of the prevailing economic pattern, but only to analyze some of the possible environmental implications derived from the way of insertion of the countries of the region in the global economy. The region as a whole is relatively well endowed in terms of natural resources. With little more than 8% of the global population, Latin America has 23% of the potentially arable land, 10% of the cultivated land, 17% of the pastures, 22% of the forests (and 52% of the tropical forests), and 31% of the permanently usable freshwater. It has not less than 3% of the world reserves of fossil fuel and 19% of the technically usable hydroelectric Power. Regarding economic globalization, the general argument from the environmental point of view is not that international trade is negative and that autarchy is desirable, but rather that a certain degree of regulation is necessary to reach a "sustainable free trade." The technological aspect of globalization is so important that it is possible to speak of a true techno-economic revolution or Knowledge Revolution (see also Chichilnisky's chapter in this book), led by microelectronics and the information technologies, and accompanied by a constellation of developments based on new technologies intensive in science (biotechnology, new materials, new energy sources, nanotechnology, etc.). From the point of view of their environmental implications, many of the new and emergent technologies exhibit interesting differences with the previous technological paradigm. The attributes of the new paradigm having higher strategic interest can be characterized as ambivalence, flexibility, and knowledge-intensivity. The technical potential for ecologically sustainable development is higher today than in any moment of the past. However, the direction toward which the trajectories of the new techno-economic paradigm seem to be moving suggests that, unless Latin America adopts active and sustained strategies to carry out the necessary social, economic, and technological structural changes, the mentioned technical potential is likely to materialize only in the most advanced countries, with the region running the serious danger of concentrating the perverse effects of the techno-economic revolution. A prospective analysis was carried out, based on simple simulation models of the ecosystemic transformations associated to land use in each of the 18 major lifezones represented in Latin America. Two basic socioeconomic scenarios were defined by the whole region: the reference scenario and the sustainable scenario. The reference scenario suggests the type of environmental consequences associated with land use that an unrestricted and unregulated opening of the economies (in the context of an absence or widespread weakness of environmental and social policies) would have. The sustainable scenario shows that, from the ecological and technological points of view, it is possible to change direction toward a much more desirable long-term situation, without too large direct economic costs. Implications of strategic importance for the sustainable development of the region are identified.Latin America; environment; urbanization; natural resources; sustainable free trade; globalization; technology; ecosystems; modeling; climate change; resource extraction; overuse

Resources and North-South Trade: A Macro Analysis in Open Economies

This paper explores the impact of resource export policies on the major macro variables of exporting and importing economies. Two regions, North and South, trade resources for industrial goods. Each region produces two goods with three factors: capital, labor and resources. The relative prices in the five factor and goods markets, as well as the outputs, consumption and international trade levels, are all determined endogenously. The general equilibrium is parameterized by the volume of resources traded. An increase in resource exports may be either beneficial or harmful, depending on the characteristics of the trading economies. When the South's economy is dual, the North's homogeneous, and the rates of profit are high, increases in resource exports are associated with lower real wages, employment and consumption in the South; the South's terms of trade and its export revenues decrease. This is traced to changes in the domestic terms of trade between the traditional and the industrial sectors. However, the profits in the South increase, thus explaining in part the expansion of exports under these circumstances. More favorable outcomes are obtained by increasing resource exports when the exporting economy is more homogeneous. Sufficient conditions are given for an export policy that increases the welfare of the exporting country, improves its international terms of trade and increases its export revenues. The characteristics which determine whether an expansion of resource exports is beneficial or harmful to the economy are the structure of the economy and the endogenous factor prices. Since the equilibria and the associated values of endogenous variables are determined for a given level of resource exports, it follows that whether it is better to increase or decrease the volume of resources exported will depend on the equilibrium level of exports. It is therefore possible to determine the optimal level of exports for an economy of a given structure

Von Neumann-Morgenstern Utilities and Cardinal Preferences

We study the aggregation of preferences when intensities are taken into account: the aggregation of cardinal preferences and also of von Neumann- Morgenstern utilities for cases of choice under uncertainty. We show that with a finite number of choices, there exist no continuous anonymous aggregation rules that respect unanimity for such preferences or utilities. With infinitely many (discrete sets of) choices, such rules do exist and they are constructed here. However, their existence is not robust: each is a limit of rules that do not respect unanimity. Both results are for economies with a finite number of individuals. The results are obtained by studying the global topological structure of spaces of cardinal preferences and of von Neumann-Morgenstern utilities. with a finite number of choices, these spaces are proven to be noncontractable. With infinitely many choices, on the other hand, they are proven to be contractable

Taxes and Resource Prices: A North-South Game

The purpose of this note is to construct and analyze a model of North-South trade in resources, which could then be used as the basis of an experimental game for the formulation of resource pricing policies. The South trades oil for industrial goods with the North. Each region has one policy parameter: the North, a tax on oil, and the South, the price of oil. Each region has two economic objectives: the North, higher output and higher real wages, and the South, higher revenues from exports and higher output levels. The policy instruments are used to define strategies: the payoffs of these strategies are given by the general equilibrium solutions of the model

North-South Trade and Basic Needs

This paper examines the role of the international market in mediating North-South relations and analyzes how the market works in distributing the gains from trade. It is argued that the international market does not always provide an adequate engine of growth for the South if that region specializes in labor-intensive products. The South's export sector must be carefully balanced with other domestic sectors to avoid harming the economy as a whole. Any excessive expansion of labor-intensive exports or raw materials, even if accompanied by an expansion in international demand may affect domestic markets and the distribution of income in the South in ways that conflict with sustainable development. especially when this is measured in terms of the satisfaction of basic needs for the majority of the population. The conditions under which this may occur are quite general. They are consistent with perfect market behavior but require that important features of the North-South relationship, including differential characteristics of technologies and factor markets in the two regions. be introduced into the analysis. The paper suggests alternatives to export-led policies, which balance domestic and international sectors of the South's economy and are conducive to sustained development and the satisfaction of basic needs. An appendix provides a model of North-South trade that has been econometrically tested for the trade between Sri Lanka and the UK. The appendix also includes a computer program for simulating the model and sample computer runs that reproduce, in practical terms, the model trade policies discussed in the paper

Production Technologies and the Phillips Curve

In an economy with increasing returns to scale in production, wage changes and unemployment levels are shown to fluctuate systematically. Such fluctuations are part of the stable long-run configuration of the economy. They generate data sets in which wage changes show a negative Phillips-type correlation with the level of unemployment. This negative correlation is a reflection of the conventional Walrasian price adjustment process in the labor market, and does not imply that across equilibria there is a negative relation between wage changes and unemployment. In particular, it does not imply the existence of a trade-off between inflation and unemployment

Energy-Capital Substitution: A General Equilibrium Analysis

We consider an economy which imports energy from a monopolistic price-setter. The domestic general equilibrium of this economy adjusts in response to the price of energy. We define the total cross price elasticity of demand between energy and capital as the cross price elasticity across general equilibria of the economy, as the equilibrium changes in response to energy price changes. This corresponds to the price elasticity given by a total demand curve, and incorporates adjustments on both supply and demand sides. It is shown that whether this total elasticity implies energy-capital complementarity or substitutability depends upon the parameters of the model and the price of energy: for a given model, there may be a change from substitutability to complementarity as the price of energy rises. This framework offers an additional way of reconciling apparently conflicting findings on energy-capital complementarity and substitutability: an earlier suggestion was made by Berndt and Wood (1979). It is a natural extension of the general equilibrium approach initiated by Hogan (1977)

Resources, Trade, and Debt

The paper studies a two-region economy that has two sectors and three factors of production: oil, capital, and labor. The South exports oil in exchange for industrial goods from the North. There is a net capital inflow to the South. This equals the difference between its export revenues and import costs, and represents the South's indebtedness. This overseas borrowing finances the development of the oil sector: increased borrowing leads to &her oil supplies, to new levels of consumption and a new distribution of income in the South, and to new levels of industrial exports from the North. The paper studies the macro impacts of changes in the values of the debt on both the borrowing and the lending regions