Economic growth and biodiversity

Economic growth and biodiversity: a sectoral model

Many scientists are claiming that the Sixth Mass Extinction of species is underway. On top of the direct negative impacts on human well-being, one reason to worry is that biodiversity provides numerous ecosystem services that are essential to the economy. The aim of this paper is therefore to propose a global macroeconomic growth model that takes into account the dynamics of biodiversity and the ecosystem services it provides. The economic dynamics are those of a Ramsey-Cass-Koopmans model and the economy is divided into three sectors (agriculture, industry and services) in order to better reflect its interactions with nature. For the ecological dynamics, the calibration of the model relies on three key ingredients: the quantification of (i) the impacts of human activities on biodiversity dynamics, (ii) the relationship between biodiversity and ecosystem services, and (iii) the dependence of production on ecosystem services. For the two first ingredients, I bring together the latest advances in biology on the “Species-Area” and “Biodiversity-Ecosystem Functioning” relationships. For the third one, I put forward a new method for estimating sectoral production functions. Assuming the three sectoral production (agriculture, industry and services) are Cobb-Douglas functions of productivity, ecosystem services, capital, labor and land use, I conduct a growth accounting estimation exercise. I estimate the different elasticities of the Cobb-Douglas functions using the input-output table of GLORIA and its environmental extension. Importantly, preferences are non-homothetic: there is a minimum subsistence food level. My main results focus on optimal land use on a macroeconomic scale. I show that this value is determined by the trade-off between the total marginal costs and marginal benefits of agricultural production. The costs are broken down into the direct costs of land conversion and the social (productive) costs associated with the loss of ecosystem services. Because of the need for water supply (regulated by biodiversity) in the industrial sector and the non-homothetic preferences, the optimal land use significantly decreases with the development stage of an economy. Its optimal level is half as high (18% vs. 39%) in a developed country as in a less developed one. The next step of my work will consist in decentralizing the equilibrium in order to (i) assess the potential rebound effects that could occur after implementing policies, especially in the case of land use intensification and (ii) grasp what could be a tax on land designed to internalize the negative impact of land conversion on the provision of ecosystem services and on the direct welfare of a representative agent. Overall, beyond developing methodological ideas, the aim of this paper is to shed light on the mechanisms at work behind the macroeconomic and environmental consequences of sectoral policies aimed at changing the way we interact with biodiversity.

Preliminary version