MBIs in Developing Economies

In developing economies the market mechanism is not fully developed as production is often for self-consumption. There is considerable unemployment and under- employment that prompts people to venture into nearby forests to collect he1 wood and other forest products. Industries also are yet to develop fully in the sense that R&D expenditure is the barest minimum in developing economies. The scale of operation in many cases, particularly in small scale industries, is such that installation of pollution abatement technology is not cost effective. Moreover, many developing economies are more particular about growth than environmental concerns. In order to attract investment &en governments in developing economies compromise on the technology of production. Provision of subsidized raw materials and land to industries is a common phenomenon in developing economies. Under such circumstances adoption of MBIs need to be with caution; particularly the following points should be paid attention.

a) There should be adequate knowledge base on benefits and costs of policy instruments in developing economies. Moreover, institutional and technological constraints should be kept in mind while designing MBls.

b) There should be a strong legal structure, clear definition of property rights, and the ability to transfer such rights.

c) Many of the policy instruments, particularly tradable permits, require the existence of a competitive market. If competitive market does not exist, and cannot be created, the policy instrument may not be effective.

d) Enforcement is one of the major problem areas in developing economies. There should be adequate administrative capacity to design, implement, monitor and enforce the MBIs.

We have mentioned earlier that MBIs offer double dividend. If environmental taxes are introduced mainly as revenue raising instruments than as an environmental protection measure, then it may boomerang, and lead to inefficiency in resource allocation. Notwithstanding the above limitations, MBIs are making their headway in developing countries like Korea, Malaysia, Chile, China, Thailand and Taiwan and many Latin American and African countries.