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This article empirically examines the relationship between biodiversity loss and economic growth in light of the current debate on the effects of economic growth on environmental quality. The basic premise is that biodiversity belongs to a special class of environmental degradation because it involves complex ecosystems, the loss of which cannot be recovered by technological advances. The main finding is that although economic growth has an expected adverse effect on biodiversity, the composition of economic output can also be significant, particularly in low-income countries. The study highlights the need to develop appropriate institutions and macroeconomic policies that allow biodiversity values to be internalized in decisionmaking processes. (JEL Q22, Q23, Q28)
ABBREVIATIONS
EKC: Environmental Kuznets Curve
FAO: Food and Agriculture Organization
GDP: Gross Domestic Product
OECD: Organisation for Economic Co-operation and Development
OLS: Ordinary Least Squares
I. INTRODUCTION
Biodiversity loss is among the most serious environmental problems facing the world today. Natural habitats in the moist tropical regions, which harbor the majority of the world's flora and fauna, are being lost at an alarming rate. It is estimated that in tropical rain forests alone the rate of loss of entire species (not merely genetic varieties or subspecies) is now a minimum of about 27,000 per year, or 3 per hour, and the rate is increasing. This rate of decline is believed to be at least 1000 times the "ordinary" (i.e., background) rate of extinction (Wilson, 1992). There are many who believe that we are facing a biodiversity crisis, and others have gone as far as to suggest that we are slipping into a rate of extinction that may well rival that which resulted in the demise of the dinosaurs some 65 million years ago.
Within the past decade, there has been a resurgence of the debate about the effects of economic growth on environmental quality.
This particular debate has been fueled by studies carried out in the early 1990s that showed that there is an inverted U-shaped relationship between certain indicators of environmental degradation and economic growth (e.g., see Grossman and Krueger, 1991, 1995; Antle and Heidebrink, 1995; Shafik and Bandyopadhyay, 1992; Selden and Song, 1994). This relationship is now widely known as the environmental Kuznets curve (EKC). The EKC hypothesis suggests...