The impact of sustainability on inequality: Testing the cases of Colombia, Costa Rica and Peru

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LEIDEN UNIVERSITY

The impact of sustainability on inequality

Testing the cases of Colombia, Costa Rica and Peru

Bachelor thesis – Inequality in Political

Perspective

Institute of Political Science, Leiden University

Supervisor: Dr. B.K.S. van Coppenolle Bachelorproject 6

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Table of contents

Introduction………. – 1 –

Theoretical framework……….. – 3 –

Research question……….... – 13 –

Methodology and data………... – 15 –

Discussion and conclusion………... – 26 –

References………... – 28 –

Appendix a: Data of Colombia………...……... – 30 –

Appendix b: Data of Costa Rica……….……….. – 31 –

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Introduction

While a lot of attention has been drawn towards the relationship between inequality and

economic growth and social development, the association with environmental sustainability has remained rather uncharted (Islam, 2015). Environmental sustainability has become a widely acknowledged goal and there is only one alternative: unsustainability. Sustainability, though, contains a time dimension meaning that in the past unsustainability was not really at stake and it did not include an immediate existential threat (Bossel, 1999). Now, unfortunately, the alternative to sustainability cannot be realised if we want our children and grandchildren to live the same life we lived. But sustainability has also become a trend in the past few years. Al Gore has shocked many people with his, greatly discussed, analysis of the consequences if we continue down this path (Wilkinson et al., 2010). Ever since, lots of conferences and action groups have been set up to fight for the world’s future. But what is sustainable development and why do we need to stress about the concept?

To sustain means ‘to keep going; to maintain’ (Bossel, 1999). In this sense, sustainability does not seem to mean much for human society. But human society depends on another complex adaptive system for support, the natural environment, in which change and evolution are constantly present. And this is where it gets interesting. The ability for change and evolution should be provided by us, human society, in order for the environment to cope with their changing society (Bossel, 1999). This is where the development part of the concept comes in. We need to make sure that planet earth has the ability to develop to endure the changes in and around itself. This thesis will be about environmental sustainable development which means there is a need to clarify a third part, namely ‘environmental’. Environmental sustainability is about the

maintenance of natural capital and will further be explained in the theoretical framework of this thesis.

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same level of GDP, but the GDP has increased over a period of ten years with about the same percentage. Furthermore, the need for a sustainable transition towards a fully developed economy where economic growth is decoupled from environmental pressures is necessary, not only for their contribution to a healthier world for the next generations but also as an example to developing countries who are not yet at the stage of those countries. Also, they are situated in the same region, which makes it very interesting to compare them, but this will be explicated in the methodology section. In summary, the three cases are selected on their growth, their need for sustainability and their region.

For the remainder of this thesis, I will research the, whether or not existing, relationship between sustainability and inequality and I will keep two aspects in mind. The first aspect will be the political histories of the three countries and the second will be to either to approve or reject the adjusted Environmental Kuznets Curve which will be explicated in the theoretical framework, what applies to all concepts which need further explanation. This thesis aims to answer the following question: How can the degree of sustainability explain differences in the degree of income inequality? The question will be about whether sustainability or political history makes a difference in inequality, given the fact that the cases have gone through the same growth in GDP which will be the stable, independent factor. The theory that will test this question will be the adjusted Environmental Kuznets Curve which will be explained in the theoretical framework and it will scrutinize the theory by testing its applicability on three cases selected by a most similar system design which will be further explained in the Methodology and Data section. The

methodology and data will be discussed in the third part and a case study will follow to end with a discussion and conclusion.

The results of this thesis will set out a possible future, which will be a prediction if those

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Theoretical framework

In order to explain the different definitions and challenges of the concepts and theories this thesis will build upon, this section will be divided into subsections to explain the different concepts and theories which are helpful and necessary in order to understand the problem of sustainability and the need for a sustainable future.

Environmental sustainability

It is almost unimaginable nowadays, but once upon a time the words ‘sustainable’ and

‘sustainability’ were not as ubiquitous as they are today (Caradonna, 2014). Firms are hyping their products by putting sustainability logos on the packages and no policy can be made without the word ‘sustainability’ in it to be taken seriously. The growing interest is evident from 1976 onwards and can clearly be seen by looking at book titles which Caradonna (2014) shows in Figure 2.

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The growing curiosity for sustainability is not out of place nor unjust. Malthus, Hardin and other scientists have embodied a notion of sustainability in the first place by writing about the

viewpoints on population and the use of resources (Goodland, 1995). Goodland (1995)

eventually puts forth a definition of environmental sustainability as ‘the maintenance of natural capital’ and relates it to the concept apart from but also connected to social and economic sustainability. Social sustainability is classified by the Global Report Initiative into four sub-categories: labour practices and decent work, human rights, society and product responsibility (Popovic et al., 2018). The third pillar of sustainability is economic sustainability. The central question hereby is how we can meet the economic needs of the present without diminishing economic opportunities in the future (Ikerd, 2012). This thesis will only focus on environmental sustainability. But in understanding environmental sustainability more clear, it is important to distinguish environmental sustainability from ecological sustainability, which indicates a certain degree of interdependence between elements within a system (Morelli, 2011). However, in contrast to the word ‘ecological’, the word ‘environmental’ is mostly used as a reference to human interaction with the ecosystem (Morelli, 2011). In this sense, ‘environmental’ can be seen as a subset of the broader concept of ‘ecological’ which should not be mixed up when reading further possible references from the literature list. The definition of ‘sustainability’ has been given earlier in the introduction part. Thus all together, the definition of Goodland (1995) seems like a logical and acceptable definition. But why is sustainability so important? The demand for

sustainable actions came to light with the realisation that the world’s resources are not endless and that current patterns would not sustain even if envisaged in the near future, because this would lead to biophysical infeasibilities (Goodland, 1995). The global life-support systems pose a time limit on their decline so the transition to environmental sustainability is crucial because there is no time to create ‘more’ environment. We have to save the remains of the environment and invest in the reconstruction of the bits of the environment which we have already damaged (Goodland, 1995). ‘Growing’ into sustainability does not exist.

What is the current situation of the sustainability problem? From 2000 onwards, the academic field that got involved with the concept of sustainability expanded enormously and a considerable number of organisations and societies have adapted the principles of sustainability (Caradonna, 2014). The concept of sustainability has gone through a transformation from a negligible

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of more than 400 parts per million has been calculated which is about twice as much as ten years before and in comparison, during the Industrial Revolution the mean concentration of the most important and destructive greenhouse gas was about 280 parts per million (Ten Brinck, 2015). Because of the increase of CO2, the mean temperature will rise with all the consequences this entails. For example the increasing sea level, which is twenty centimetres higher now than in 1870, because of the melting polar ice caps (Ten Brinck, 2015). If the sea level continues to grow, 280 million people are at risk of losing their homes. The importance of sustainable development in its most basic manner is a real necessity for our next generations to be able to live the same life we have. Sustainability also comes with a few challenges and this thesis will focus on one of the greatest challenges of sustainable development, namely equality, or rather inequality as can be seen in Figure 1 (Wilkinson et al., 2010). Figure 1 shows that the higher the degree of

sustainability, the lower the degree of inequality. This is an interesting conclusion of Wilkinson et al. to make, and this debate will be part of the research of this thesis. However, inequality ought to be fundamental in considering environmental policies because of its two-way relationship with environmental sustainability (RFF Staff, 2013).

Figure 1 (Wilkinson et al., 2010)

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deaths. The other side of the relationship is the effect of inequality on environmental

degradation. The relation here depends on a political mechanism and relates to priorities (RFF Staff, 2013). Poor people probably have other first concerns than the complexity of

environmental issues. Their most likely concern lies within the economy and their own survival. As a result, in democracies with a high level of inequality, the support for environmental policies will be quite low because the votes of the poor will go to parties with more economic policies (RFF Staff, 2013). The nexus between sustainable development and inequality is inevitable and this thesis hopes to contribute to the research of this nexus.

Inequality

The importance of inequality and the many conceptions that come with the problem will become clearer when looking more into the basis of inequality. Inequality concerns not only people all over the world, but above all, most of the people all over the world. The importance for people has been caved in to enough. There are also a few reasons why inequality is important from a political-economic point of view which indicates the importance of a solution for inequality. The first reason refers to social justice (Edward & Lybbert, 2015) It generally is supposed that the concentration of the economic benefits on just a few is not fair. Secondly, the problem of relative deprivation is of great influence. Suppose your income does not change while your neighbour’s income increases with all the benefits that come with the increase. Consequently, this will make people depressed (Edward & Lybbert, 2015). Thirdly, the changes of levels of income and the distribution in one country can have negative effects on production and employment in other countries because the structure of the economy is different in countries with different levels of equality. Research shows that people from poor and middle-income countries are more likely to spend their money on products and services within the country whereas rich countries are more likely to import products and services from outside of their country (Edward & Lybbert, 2015). Inequality is also of interest to economic efficiency due to the failure of the assumptions of a perfectly functioning market. Undoubtedly, no bank is willing to loan money to the poor which means the poor will be left depending on their liquidity to ‘self-finance’ their production (Edward & Lybbert, 2015). Lastly, policies should keep the growth and poverty alleviation in mind. To make sure the economy will grow and the poverty will reduce at the same time, policies that explicitly take inequality into account are compulsory. An important side note is that inequality does not equate poverty (Edward & Lybbert, 2015). A society can have very different levels of income but with no one living underneath the poverty line or all people living underneath the poverty line but without significant differences in levels of income. Poverty is about well-being in relation to a set standard of living while inequality is about well-being in relation to others

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quite some measurements for income inequality. For this thesis, I will use the Gini index, which is based on the Gini coefficient as the indicator of inequality because, as mentioned before, the type of inequality used for this thesis is income inequality and the Gini coefficient uses income as an indicator. The choice for the Gini coefficient is based on the fact that the data for measuring the Gini coefficient is widely reported and based on primary data which makes the Gini

coefficient trustworthy (Deininger & Squire, 1996). The Gini coefficient is based on the Lorenz curve which plots the share of population against the share of income received. A Gini

coefficient has a value between 0 and 1 that is determined in a few steps. First, a countries population is put on the horizontal axis and by picking out one person a, we can calculate how many people are on the left side of person a and thus are poorer than person a. Then add one and divide the number by the country’s total population and the result will be the share of people with an income at or below the income of person a (Edward & Lybbert, 2015). By repeating this process for all people and you will get the cumulative population share from poorest to richest. To calculate the cumulative income shares, add up the income shares for each person in the population and you will get a Lorenz Curve which looks like figure 3.

Figure 3: The Lorenz curve (Edward & Lybbert, 2015)

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and it equals one in the situation of perfect inequity (Edward & Lybbert, 2015). The Gini index, which is the Gini coefficient expressed in a percentage, effectively shows how countries can blunder in terms of inequality and for the aims of this thesis it is an efficient tool to measure inequality.

Environmental Kuznets Curve

In understanding the Environmental Kuznets Curve, it is helpful to first understand the curve Simon Kuznets came up with in 1955. The evolution of inequality is a central topic in human history. Kuznets argued that as countries went through the process of development, income inequality would increase at first, would peak afterwards and then eventually would decrease (Kuznets, 1955). The shape of the graph would thus take the form of an inverse-U-shaped pattern if inequality is put on the vertical axis and income per capita on the horizontal axis like in figure 4.

Figure 4: Kuznets curve

The Environmental Kuznets Curve replaces inequality with a form of environmental

sustainability, for example the amount of CO2 emissions, and due to its similarity Kuznets name has been given to the curve, without any interference of Kuznets himself (Andreoni & Levinson, 2001). Because of the general acceptance that the only way of being sustainable is becoming rich, structural research is avoided but nonetheless, a number of scientists have appealed to the positive relationship of sustainability and economic growth. The debate around the

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Levinson, 2001). A number of credible explanations and corresponding policies exist for the inverse-U shaped Environmental Kuznets Curve. Firstly, the pattern could demonstrate the natural progression of a clean agrarian, economical situation to a high-industrialized, polluting economy which finally ends in a clean service economy (Andreoni & Levinson, 2001). A possible alternative explanation could be that the industrialized countries have moved the polluting mechanisms to other, poor countries which will mean that poor countries will never have the chance at a clean economy. The policy implication for this explanation demands international trade and capital controls to handle the ‘dumping’ problem poor countries have to deal with (Andreoni & Levinson, 2001). A second explanation follows a model that pollution concerns externalities and that if those externalities would be internalized within the country, the process of internalisation would require relative advanced economies to implement collective decision-making which is indispensable for pollution regulations (Andreoni & Levinson, 2001). Jones and Manuelli (1995), for example, suppose that economic growth is determined by market interactions and that pollution regulations are decided by young generations through, again, collective decision-making in an overlapping generations model. The pollution-income relationship will be an inverse-U-shaped pattern depending on the degree of advance of the collective decision-making institutions (Andreoni & Levinson, 2001). The higher the effectiveness of those institutions, the less arched the pattern will be which means lower pollution levels. The policy for this second explanation implies the need for effective

environmental institutions set up by and with assistance of international institutions (Andreoni & Levinson, 2001). A third possible explanation could be that pollution stops increasing and begins decreasing when the economy gets lifted because some constraints, like CO2 emissions because of old fashioned technologies, underdeveloped countries have, become nonbinding when income levels increase (Andreoni & Levinson, 2001). The main and most important argument for this explanation is that below a certain level of economic activity, only the most polluting technology can be used due to the lack of money and knowledge of more clean technologies (Andreoni & Levinson, 2001). At the point where cleaner technologies become available, the inverse-U-shaped pattern will peak and decrease. The policy suggested for this explanation entails that any

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inevitable, the inverse-U-shaped pattern will drop after its peaking point (Andreoni & Levinson, 2001).

Whatever the assumptions may be, Andreoni and Levinson (2001) suggest that the underlying assumptions for all explanations is the same, namely that an Environmental Kuznets Curve can be derived directly from the technological link between the consumption of a wanted good and the reduction of its unwanted by-product.

There is quite a debate around the trustworthiness and truth of the theory of the Environmental Kuznets Curve. Although the message for developing countries, ‘grow first, then clean up’, seems obvious and logical, numerous critics have challenged the Environmental Kuznets Curve

(Dasgupta et al., 2002). This has led to different possible curves as figure 5 shows.

Figure 5: different possible loops (Dasgupta et al., 2002).

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pessimists do make plausible claims, but the claims have not been supported by empirical

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Research question

The necessary concepts have been clarified and the fundaments upon which this research will be build are discussed. Consequently, it is time for the research question to be addressed. This research will be about sustainability and inequality and the effect the former has on the latter. This thesis aims to answer the following question: How can the degree of sustainability explain differences in the degree of income inequality? The Environmental Kuznets Curve usually plots income and sustainability against each other, so it will be interesting to see if, despite the

independent variables of all three cases, their curve will loop the same way if income inequality is plotted against sustainability, following Wilkinson et al. (2010), instead of the usual

Environmental Kuznets Curve where sustainability is plotted against income per capita. The research question will be clarified by figure 6. The arrow between ‘Degree of sustainability’ and ‘Degree of income inequality’ relates to the research question in the way that those two concepts will be plotted against each other.

Degree of sustainability?

Colombia, Peru, Costa Rica Degree of income inequality Other factors?

Figure 6: Visualisation of the research question

Hypothesis

On the basis of the Environmental Kuznets Curve theory and the research question this thesis is based on, a few hypotheses can be formulated. The expectation of the conventional

Environmental Kuznets Curve is quite obvious. In the three cases that are selected, we can expect the usual Environmental Kuznets Curve to increase, peak and decrease. Because the income inequality will be plotted against environmental sustainability in this thesis, the hypothesis gets more interesting. Four hypotheses can be formulated following figure 5 which shows

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This scenario is the most unpleasant and unwanted one. If the technological development in (one of) the cases did not follow the sustainable way, it might be possible that new technologies and thus new toxics will be produced which makes the level of sustainability decrease even more. The second hypothesis is also unwanted and not what we should hope for. The ‘race to the bottom’ loop shows a scenario in which there will be no improvement, nor declination. But if the world will follow this loop, there will be no future for next generations, as explained in the theoretical framework. The third hypothesis that could be formulated is the loop of the conventional Environmental Kuznets Curve, which has been explained in the theoretical framework. This scenario is a hopeful and wanted one. The most wanted and wished for hypothesis is the loop of the revised Environmental Kuznets Curve. This scenario might be true if growth indeed

generates less pollution in the early stages of industrialisation and pollution levels will decrease at an earlier stage. However, I expect the curve to start at a low level of income inequality and also of environmental sustainability because at levels of low inequality in the beginning, the country probably is not very developed yet and has not gone through technological developments to preserve the environment. Then, when the Gini index starts to increase I expect the level of CO2 emissions to increase as well until they peak at a certain point after which the Gini index will keep on improving while the environmental quality will improve, following the conventional

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Methodology and data

In the methodology and data section, the research will be explained and argued for. As mentioned earlier, this thesis provides a nested analysis in a most similar system design on the basis of which three countries will be selected. First, I will explain what a most similar system design consists of and which countries are selected as cases and most of all why they are chosen. The second part will contain the research and the outcomes of the research in which the degree of sustainability will be compared and contrasted with the degree of inequality.

Research design

The design chosen for this thesis is the most similar system design. When using the most similar system design, as the concept already suggests, objects of research systems are chosen which are as similar as possible except for the phenomenon that is found interesting to be assessed

(Anckar, 2008). This method of research is often chosen because of its ambition to keep all the supplementary variables, which are not of interest to the research, as constant as possible. The most obvious problem with this method of research is the shortage of countries that measure up to the requirements of the most similar system design (Anckar, 2008). Because of the limitedness of countries, it will never be possible to keep constant all possible extraneous factors. However, there are two ways of applying the most similar system design, namely a strict application and a looser application (Ancker, 2008). The strict application demands a number of control variables to be similar and only one variable, the independent variable, to be different. The looser

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How are the cases for this thesis chosen? In order to be able to make the best possible

comparison or contrast between three countries in the area of sustainability and inequality, I have chosen a few supplementary variables, which will be kept as stable as possible. The first is the area the countries are situated in. As demarcation of this variable I have chosen to pick countries of interest which are situated on the same continent because this will take possible alternative explanations away like different races or continental wars over history which have a share in the current state of the country. The second variable to be kept stable is the growth in Gross Domestic Product (GDP) per capita per year, which will be the measure for the economic growth per year. The three chosen countries should have grown the same percentage over the period 2005 – 2015. This means that the graph of one case will follow about the same loop as the other cases, but this does not mean that the numbers have to be the same. The graph of all cases will be shown later. By keeping this variable stable, the growth will not be applicable as an external variable which might possibly be an explanation to the relation between sustainability and inequality.

The last variable to be kept stable is the regime type. All countries which are chosen as cases classify themselves as a democracy. Are they democracy worthy? All three countries have open and free elections and for this thesis that will measure up to be classified as a democracy. Which variables will be independent and will not be kept stable? On purpose, there are two variables which are not kept stable. The first is the degree of inequality, measured by the Gini index which is the Gini coefficient expressed in a percentage. A Gini coefficient of 1 is equal to a Gini index of 100. Because it is interesting to see how countries with different Gini index

numbers develop over time, this variable will not be taken into consideration when choosing the cases. The second variable which is allowed to be unstable, is the number of population within a country. Because the GDP will be measured per capita, the number of inhabitants will not be of interest nor of importance to this thesis. The last variable which will be unstable is the amount of CO2 emissions. Because of the big importance and direct and indirect influences of CO2

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Case selection

For this research, I have selected three countries: Colombia, Costa Rica and Peru. For each country, I will shortly discuss the political background, their growth in GDP from 2005-2015 and their Gini index. The purpose of the comparison is to identify possible differences between countries which might be an explanation for the relationship between inequality and

sustainability.

Colombia

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and electoral democracy. During this period, violence escalated and the biggest problem was the incapability of the country to control the violence that threatened their citizens (Taylor, 2009). Since the 1980s, democracy in Colombia has degraded, especially because its inability to protect its citizens, but it still clearly contains key elements which gives it the potential of being a liberal democracy, like free and open elections. When plotting and criticising Colombia’s data and comparing it to Costa Rica and Peru, it is therefore useful to keep the violent characteristics of the country in mind.

Costa Rica

Where Colombia has the longest standing democratic institutions, Costa Rica is the oldest

democracy in Latin America (Cruz, 2005). When it comes to violence, Costa Rica is the exception in Central America. When most of the Central American countries plunged into (political)

violence in the 1980s, Costa Rica’s citizens did something quite special. On the one hand, they held on to their self-perception as a naturally civic population and on the other hand, they thought of ways to perfect and defend their democracy (Cruz, 2005). How did it all started? Costa Rica was predominantly rural and had an economy dependent on coffee and bananas (Palmer & Molina, 2004). After the elections of 1902, Costa Rica saw a democratic opening which coincided with a prolonged slump in the export economy and this deepened because of World War I in Europe in 1914. Costa Rica experienced a temporary rebound until the Great Depression in the 1920s and the situation worsened because of World War II in Europe in the 1940s (Palmer & Molina, 2004). Although the country had its share of labour militancy and political radicalism, Costa Rica survived this period without electoral politics falling to

dictatorship. The democratic miracle that happened to Costa Rica was ripped apart during the elections of 1948. Until very recently, the civil war remained the symbolic reference point of modern Costa Rican politics (Palmer & Molina, 2004). The victors of the war rejuvenated

electoral institutions and renewed a state commitment to social democracy, while setting aside the military as an institution and strengthening electoral laws and the agencies that were charged with overseeing the laws (Palmer & Molina, 2004). In comparison with Colombia, the nationalist feeling seems to me to be stronger in Costa Rica and the absence of violence is a positive contributor to this feeling I believe. When plotting and criticising the data of Costa Rica and comparing it to Colombia and Peru, these characteristics should be kept in mind.

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Peru’s transition to a democracy is at the moment almost in its third decade. Until the end of the nineteenth century, Peru had no effective civilian governments that were established and

different constitutions came and go in quick succession (Wright, 2015). Given the situation of turmoil in the nineteenth century, the constitution of 1860 was drawn up as a basis for the current-day regimes of exception, also called state of emergency, in Peru and lasted until 1920 (Wright, 2015). The success of the constitution of 1860 was probably due to the degree of

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Data

As mentioned in the research design, the GDP per capita, the Gini index and the CO2 emissions of the three countries will be presented, compared and discussed in this section. First, the three variables per country will be presented, afterwards the Kuznets Curve will be plotted per country as well as the adjusted Environmental Kuznets Curve, where inequality will be plotted against CO2 emissions. For the ‘usual’ Kuznets Curve graphs, I have added a polynomial which shows a trend. Because the Kuznets Curve is a well-researched theory, a polynomial may be added to substantiate the theory. Although the adjusted Environmental Kuznets Curve might not be a well-researched theory, the polynomial will be added in the graphs where inequality is plotted against CO2 emissions because the loop of the graph will be interesting. The data behind the graphs is shown in appendix A, B and C.

Colombia

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Graph 1: Colombia's Kuznets Curve

If we now take a look at the adjusted Environmental Kuznets Curve, where the Gini index is plotted against CO2 emissions, I would have expected exactly the opposite of the pattern that has come as a result from the data. Apparently, the CO2 emissions do increase, even if

Colombia’s inequality improves. It is quite interesting to see that the pattern shown in graph 2, follows about the same loop as the pattern shown in graph 1. The conclusion might be drawn that as CO2 emissions increase, the Gini index improves, and a country becomes more equal. However, one country is not enough for drawing a conclusion thus Costa Rica and Peru might give a confirmation. Looking back at the hypotheses, the curve of graph 2 looks like the loop of the conventional Kuznets Curve.

An appealing outlier is worth mentioning here. The year 2012 seems to have been one of the best years looking at inequality and sustainability. In the discussion, I will research possible

explanations for this outlier.

Colombia’s data is included in Appendix A.

2005

2006

2007 20082009 2010 2011 2012 2013 2014 2015 50 51 52 53 54 55 56 57

8000 9000 10000 11000 12000 13000 14000

Gi

ni index

(%)

GDP per capita ($ per capita)

Colombia: Gini index(%) vs GDP

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Graph 2: Adjusted Environmental Kuznets Curve of Colombia

Costa Rica

The polynomial of the Kuznets Curve of Costa Rica, shown in graph 3, looks again similar to the curve Simon Kuznets predicted though the Kuznets Curve of Costa Rica seems to be in an earlier stage of process than the Colombian Kuznets Curve, as the curve has just passed its turning point. Graph 3 shows the top of the parabolic. Costa Rica in 2015 is at about the same stage as the country was ten years ago and hopefully Costa Rica will continue down the right path.

2005 2006

2007

2008 2009

2010

2011

2012 2013 2014

2015

50 51 52 53 54 55 56 57

1.3 1.35 1.4 1.45 1.5 1.55 1.6 1.65

Gi

ni nd

ex

(%)

CO2 emissions (metric ton)

Colombia: CO2 emissions vs Gini index

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Graph 3: Costa Rica's Kuznets Curve

The pattern of graph 4 where the Gini index is plotted against the CO2 emissions, does not seem to have a fixed pattern at first sight. The dots which represent the data per year suggest a chaotic pattern of which no conclusions can be drawn. But if we look more precise, the pattern could present the top of the Kuznets Curve as presented in graph 3. The conclusion is not very promising though. Although the inequality is reducing, the amount of CO2 emissions is increasing. Like Colombia, Costa Rica has an interesting outlier as well, the year 2009. In 2009 the CO2 emissions were reduced relative to 2008, but the inequality has increased enormously. In the discussion, this will be interesting to take a look into. Another interesting thing is the dots are not plotted in a numerical order. From 2005 until 2007 inequality and sustainability worsened and Costa Rica apparently implemented policies through which, from 2009 until 2010, Costa Rica was put on the right path. Nevertheless, from 2011 onwards, the situation of sustainability on the one hand has been decreasing but the Gini index on the other hand is improving again. Looking back at the hypotheses, this loop might turn out in two of the expected patterns, either the

conventional curve or the race to the bottom which is the least wanted scenario.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 46 47 48 49 50 51 52

10000 11000 12000 13000 14000 15000 16000

Gi

ni index

(%)

GDP per capita ($ per capita)

Costa Rica: Gini index(%) vs GDP

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Costa Rica’s data is included in Appendix B.

Graph 4: Adjusted Environmental Kuznets Curve of Costa Rica

Peru

As third country in line, Peru is the third country to approve Kuznets’ theory shown in graph 5. The two other countries were at different stages on the curve from each other and Peru is at another stage as well. The polynomial of Peru seems to be in its last stage of the Kuznets Curve and looking at the Gini index, Peru is the most equal country of the three cases. Unlike the other countries, Peru does not seem to have outliers in the graph.

2005

2006 2007

2008 2009

2010 2011

2012

2013

2014

2015

46 47 48 49 50 51 52

1.5 1.55 1.6 1.65 1.7 1.75 1.8

Gi

ni nd

ex

(%)

CO2 emissions (metric ton)

Costa Rica: CO2 emissions vs Gini index

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Graph 5: Peru's Kuznets Curve

Graph 6 presents exactly the estimation that can be made following the former two cases, looking at their adjusted Environmental Kuznets Curves and shows a great similarity with graph 5. Moreover, the adjusted Environmental Kuznets Curve of Peru might be the most

corresponding graph with the Kuznets Curve of all three cases and especially the case with the least outliers. The graph does compare to graph 2 and 4 when it comes to the conclusions that can be drawn. In Peru as well, the inequality is decreasing and the CO2 emissions are increasing. It is remarkable to note that the speed with which the Gini index is decreasing, is higher than the other two cases. Thus, a third conclusion that might be drawn could be that Peru is doing the best of the three cases when it comes to inequality. Looking back at the hypotheses, graph 6 looks like the conventional curve.

Peru’s data is included in Appendix C.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 42 44 46 48 50 52 54

7000 7500 8000 8500 9000 9500 10000 10500 11000 11500 12000

Gi

ni index

(%)

GDP per capita ($ per capita)

Peru: Gini index(%) vs GDP

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Graph 6: Adjusted Environmental Kuznets Curve for Peru

Discussion and conclusion

This thesis aimed to answer the following research question: How can the degree of sustainability explain differences in the degree of income inequality? More specifically, this thesis has put the

2005 2006

2007

2008

2009

2010

2011 2012

2013

2014 2015

42 44 46 48 50 52 54

1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Gi

ni nd

ex

(%)

CO2 emissions (metric ton)

Peru: CO2 emissions vs Gini index

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theory of the Environmental Kuznets Curve under scrutiny, by testing its, although adjusted, applicability on the three cases of Peru, Costa Rica and Colombia. The CO2 emissions per year and the Gini index per year were plotted against each other per case. The hopes and expectations were in contrast with the actual results. The hope was that the CO2 emissions would decrease with the improvement of the Gini index, but the results have shown that the CO2 emissions keep on increasing if the Gini index improves. The conventional Kuznets Curve, where the Gini index is plotted against GDP, did show the results the theory of Simon Kuznets expected and advocated for. Interestingly enough, all cases were at a different stage on the curve because all cases have a different Gini index. Peru had the best Gini index and is therefore the most equal of the cases, but in comparison with Colombia and Costa Rica, Peru has the highest amount of CO2 emissions. An explanation for this is difficult but as mentioned earlier, Peru has the most unstable history and has the lowest GDP which might be of an influence on the data of Peru. Costa Rica and Colombia are at an earlier stage on the inverted u-curve. Both countries are just past the turning point and are on their way of becoming more equal but also on their way of becoming less sustainable. An interesting side note is that Costa Rica has the highest GDP and taking their history into account, this could be due to their strong nationalism. Looking back at the debates explicated in the theoretical framework, it can be concluded that Wilkinson et al. (2010) were wrong when they claimed that the higher the degree of sustainability, the lower the degree of inequality. It can be concluded that Simon Kuznets was right and Wilkinson et al. (2010) were wrong. Also, in the theoretical framework, three possible explanations were

discussed for the inverted U-shape. The alternative to the explanation of Andreoni and Levinson (2001) was the dumping problem. It might be true that other countries dump their polluting mechanisms in poorer countries which will help their economy but will destroy the environment. This could be a plausible explanation for the results of this thesis.

However, the polynomial of the second graph per country loops about the same as the first graph. An explanation might be that the Gini index, which is on the y axis on both graphs, simply determines the loop of the polynomial but there also might be a relation between the GDP per country and the CO2 emissions which makes the polynomial loop the same. This can be

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References

Andreoni, J. & Levinson, A. (2001). The simple analytics of the Environmental Kuznets Curve. Journal of Public Economics, 80(2), 269-286.

Anckar, C. (2008). On the applicability of the most similar systems design and the most different systems design in comparative research. International Journal of Social Research Methodology, 11(5), 389-401.

Bossel, H. (1999). Indicators for sustainable development: Theory, method, applications. Canada: International Institute for Sustainable Development.

Caradonna, J.L. (2014). Sustainability: A history. Oxford: Oxford University Press.

Cruz. C. (2005). Political culture and institutional development in Costa Rica and Nicaragua: World making in the tropics. Cambridge: Cambridge University Press.

Dasgupta, S., Laplante, B., Wang, H. & Wheeler, D. (2002). Confronting the Environmental Kuznets Curve. Journal of Economic Perspectives, 16(1), 147-168.

Deininger, K. & Squire, L. (1996). A new data set measuring income inequality. The World Bank Economic Review, 10(3), 565-591.

Edward, T.J. & Lybbert, T.J. (2015). Essentials of development economics. Oakland, California: University of California Press.

Goodland, R. (1995). The concept of environmental sustainability. Annual Review Ecological Systems, 26, 1-24.

Ikerd, J. (2012). The essentials of economic sustainability. Sterling: Lynne Rienner Publishers.

Islam, S. N. (2015). Inequality and environmental sustainability. DESA Working Paper, 145, 1-28.

Kaika, D, & Zervas, E. (2013). The Environmental Kuznets Curve theory. Part B: Critical issues. Energy Policy, 62, 1403-1411.

Melikhova, O. & Cízek, J. (2014). Kuznets inverted u-curve hypothesis examined on up-to date observations for 145 countries. Prague Economic Papers, 3, 388 – 410.

Morelli, J. (2011). Environmental sustainability: A definition for environmental professionals. Journal of Environmental Sustainability, 1(1), 1-9.

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Popovic, T., Barbosa-Póvoa, A., Kraslawski, A. & Carvalho, A. (2018). Quantitative indicators for social sustainability assessment of supply chains. Journal of Cleaner Production, 10, 748 – 768.

RFF Staff (2013). Inequality and environmental policy. Retrieved from http://www.rff.org/ Taylor, S.L. (2009). Voting amid violence: Electoral democracy in Colombia. Boston: Northeastern

University Press.

Ten Brinck, T. (2015). Hoe zit het nu echt? 10 feiten over het klimaat. Retrieved from https://www.duurzaambedrijfsleven.nl/

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