Download Economic Analysis of Driving Force of Environmental Burden during

Economic Analysis of Driving Forces of Environmental Burden during the Transition Process
A case study for the Czech Republic 1993-2000
Jan Brůha
Charles University Environment Center in Prague, Czech Republic
Milan Ščasný
Charles University Environment Center in Prague, Czech Republic
This is an extended abstract of a paper ”Economic Analysis of Driving Force of Environmental Burden
during the Transition Process: A case study for the Czech Republic 1993-2000”
prepared for a regular parallel session of the conference of ISEE, 2004.
The paper refers to the conference theme “Macroeconomics and the environment”.
Keywords: ecologic burden; material flow analysis; driving force; Environmental Kuznets Curve; structural
changes; transition; Czech Republic
The Central European economies have passed a long way from centrally-planned systems towards the market
system since 1990. Although the transition economies are still material and energy intensive comparing to more
developed economies, huge structural changes have occurred and the quality of the environment has been
significantly improved in many areas.
There are several explanations why the environmental quality has improved, among the most popular ones are:

structural changes: increase in the share of market services with decrease of the share of heavy industry
on GDP,

increase in public environmental concern, which has lead to adoption of environmental regulation and
which has induced public as well as private environmental investments,

technology diffusion from more developed countries,

external pressures from international bodies (especially from the European Union) to adopt
environmental standards and regulation.
These explanations are surely not mutually inconsistent, and thus it is not easy to assess the exact role of each of
them. Moreover, other important factors can have an unclear (or even ambiguous) impact as well: a prominent
example is Foreign Direct Investments. These investments may diminish relative environmental burden by
technology diffusion, or they can intensify the burden by a “composition effect”: firms from countries with
tougher environmental regulation may have incentives to re-allocate their activities to countries with in some
regard less strict regulation. Since environmental regulation in transition countries is not as tough as in the E.U. or
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the U.S, it may be a case that firms from these countries would invest in Central Europe and use a comparative
advantage of relatively less strict environmental standards.
To understand the nature and the extend of these factors is crucial not only for ‘historical’ reasons, but also for
future public policy. This is because the material and energy intensity of these countries still remains high
(comparing to the E.U.) and thus we may expect that policy-makers would aim at improve the situation. For this
policy purposes, it is worth to know whether decline of environmental burden due to economic activity is caused
mainly by public environmental investment, indirect regulation (environmental taxes) or by technological change.
This paper aims at quantitative assessment of main driving forces, which have helped decrease the environmental
burden in the Czech Republic during the transition. The investigated environmental burden is based mainly on the
concept of dematerialization. This is a concept of material flows, accounts and balance that provides an
information on the total mass of annual material inputs and outputs for the whole economic system. The material
flow accounts and derived indicators for the Czech Republic for 1990-2002 have been recently composed by
Scasny et al. (2003) and further widen by Kovanda (2004). As an alternative, we also consider the total amount of
main air emission.
Economic variables compose from data on value added, foreign-direct investments, private and public
environmental investments, consumption, international trade flows and capital-labor intensity ratio. All data
(environmental and economic) are disaggregated on the sectoral level. The data span covers the period of 19932002. Using these data, we perform an econometric exercise to infer impacts of policy and other factors on the
environmental indicators.
We would like to answer especially the following set of question:

To what extend, has the structural change in the Czech economy has led to decrease of the environmental
burden and what is the role of technological progress and factor utilization.

To assess quantitatively efficiency of environmental investment on the main ecological indicators.

To test the impact of the foreign –direct investment on material and energy intensity of Czech economy,
during transition.
This paper continues and extends the research presented in:
Scasny, M., Kovanda, J, Hak, T. (2003), Material flow accounts, balances and derived indicators for the Czech
Republic during the 1990s: results and recommendations for methodological improvements. Ecological
Economics 45(2003), pp. 41-57.
Kovanda, J. (2004), Database on the Material flows accounts for the Czech Republic. Charles University
Environment Center. Prague, mimeo (unpublished).