Wealth & the Environment
Gene M. Grossman and Alan B. Krueger (”Economic Growth and the Environment“) concluded that “for most indicators, economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before a country reaches a per capita income of $8,000.”
In January 2001, the World Economic Forum, the Center for International Earth Science Information Network, and the Yale Center for Environmental Law and Policy published an Environmental Sustainability Index (ESI). The Index assigns the health of a country’s environment a single number ranging from 0 to 100, in which zero means low sustainability and 100 means high sustainability. Chart 1 illustrates the relationship between The Heritage Foundation/Wall Street Journal 2001 Index of Economic Freedom scores and the ESI. The chart shows a strong relationship between economic freedom and environmental sustainability. The freer the economy, the greater the level of environmental sustainability.
The Heritage Foundation calculated a “Trade Openness Index” based on the 2001 Index of Economic Freedom by averaging the score for the trade policy, property rights, capital flows and foreign investment, and regulation factors. Consider the relationship between the Trade Openness Index and the Environmental Sustainability Index illustrated in Chart 2. In countries with an open economy, the average environmental sustainability score is more than 30 percent higher than the scores of countries with moderately open economies, and almost twice as high as those of countries with closed economies.
“Trade: The Best Way to Protect the Environment,” by Ana I. Eiras and Brett D. Schaefer